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What changed in ServisFirst Bancshares, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ServisFirst Bancshares, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+349 added−381 removedSource: 10-K (2024-03-01) vs 10-K (2023-02-28)

Top changes in ServisFirst Bancshares, Inc.'s 2023 10-K

349 paragraphs added · 381 removed · 285 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

91 edited+34 added−24 removed166 unchanged
Biggest changeWe draw most of our deposits from, and conduct most of our lending transactions in, these markets. 6 According to Federal Deposit Insurance Corporation (“FDIC”) reports, total deposits in each of our primary market areas have expanded from 2012 to 2022 (deposit data reflects totals as reported by financial institutions as of June 30 th of each year) as follows: 2022 2012 Compound Annual Growth Rate (Dollars in Billions) Jefferson/Shelby County, Alabama $ 47.2 $ 26.5 5.94 % Mobile County, Alabama 10.7 6.0 5.96 % Madison County, Alabama 10.6 5.9 6.03 % Montgomery County, Alabama 7.5 6.6 1.29 % Baldwin County, Alabama 6.9 3.2 7.99 % Houston County, Alabama 3.4 2.1 4.94 % Orange County, Florida 50.4 22.5 8.40 % Hillsborough County, Florida 46.2 23.5 6.99 % Sarasota County, Florida 20.9 11.4 6.25 % Leon County, Florida 9.2 4.8 6.72 % Escambia County, Florida 6.6 3.5 6.55 % Okaloosa County, Florida 6.1 3.5 5.71 % Cobb County, Georgia 27.0 10.1 10.33 % Muscogee County, Georgia 7.0 6.3 1.06 % Douglas County, Georgia 2.6 1.2 8.04 % Mecklenburg County, North Carolina 310.4 193.0 4.87 % Buncombe County, North Carolina 7.7 4.3 6.00 % Charleston County, South Carolina 18.3 7.6 9.19 % Dorchester County, South Carolina 2.3 1.1 7.65 % Davidson County, Tennessee 54.9 23.1 9.04 % Our bank is subject to intense competition from various financial institutions and other financial service providers.
Biggest changeWe draw most of our deposits from, and conduct most of our lending transactions in, these markets. 6 According to Federal Deposit Insurance Corporation (“FDIC”) reports, total deposits in each of our primary market areas have expanded from 2013 to 2023 (deposit data reflects totals as reported by financial institutions as of June 30 th of each year) as follows: 2023 2013 Compound Annual Growth Rate (Dollars in Billions) Alabama: Jefferson/Shelby County, Alabama $ 44.03 $ 27.3 4.9 % Mobile County, Alabama 9.7 6.0 5.0 % Madison County, Alabama 10.0 6.1 5.0 % Montgomery County, Alabama 7.8 6.5 1.9 % Baldwin County, Alabama 6.8 3.4 7.2 % Houston County, Alabama 3.4 2.2 4.5 % Florida: Orange County, Florida 47.4 24.3 6.9 % Hillsborough County, Florida 41.7 25.7 5.0 % Sarasota County, Florida 19.3 11.7 5.2 % Leon County, Florida 8.3 4.8 5.6 % Escambia County, Florida 7.4 3.5 7.8 % Okaloosa County, Florida 5.3 3.5 4.3 % Bay County, Florida 4.7 2.5 6.5 % Georgia: Cobb County, Georgia 29.7 10.3 11.2 % Muscogee County, Georgia 7.4 5.5 3.0 % Douglas County, Georgia 2.5 1.2 7.4 % North Carolina: Mecklenburg County, North Carolina 357.0 199.0 6.0 % South Carolina: Charleston County, South Carolina 16.4 8.0 7.5 % Dorchester County, South Carolina 2.4 1.1 8.2 % Tennessee: Davidson County, Tennessee 55.9 23.3 9.2 % Virginia: Virginia Beach (City), Virginia 8.4 5.6 4.2 % Our bank is subject to intense competition from various financial institutions and other financial service providers.
Prior to entering a new market, historically we have identified and built a team of experienced, successful bankers with market-specific knowledge to lead the Bank’s operations in that market, including a regional chief executive officer.
Prior to entering a new market, we have historically identified and built a team of experienced, successful bankers with market-specific knowledge to lead the Bank’s operations in that market, including a regional chief executive officer.
Loans secured by certain readily marketable collateral are exempt from these limitations, as are loans secured by deposits and certain government securities. Commercial Real Estate Concentration Limits The Federal Reserve and other federal banking agencies promulgated guidance governing financial institutions with concentrations in commercial real estate lending entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices”.
Loans secured by certain readily marketable collateral are exempt from these limitations, as are loans secured by deposits and certain government securities. 18 Commercial Real Estate Concentration Limits The Federal Reserve and other federal banking agencies promulgated guidance governing financial institutions with concentrations in commercial real estate lending entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices”.
We analyze these statements, looking for weaknesses and trends, and will assign the loan a risk grade accordingly. Based on this risk grade, the loan may receive an increased degree of scrutiny by management. Real Estate Loans We make commercial real estate loans, construction and development loans and residential real estate loans. 8 Commercial Real Estate.
We analyze these statements, looking for weaknesses and trends, and will assign the loan a risk grade accordingly. Based on this risk grade, the loan may receive an increased degree of scrutiny by management. Real Estate Loans We make commercial real estate loans, construction and development loans and residential real estate loans. Commercial Real Estate.
The legislation also established a new accounting oversight board to enforce auditing standards and restrict the scope of services that accounting firms may provide to their public company audit clients. 19 Overdraft Fees Regulation E imposes restrictions on banks’ abilities to charge overdraft fees.
The legislation also established a new accounting oversight board to enforce auditing standards and restrict the scope of services that accounting firms may provide to their public company audit clients. Overdraft Fees Regulation E imposes restrictions on banks’ abilities to charge overdraft fees.
The CFPB’s supervisory focus primarily involves an institution’s compliance with federal consumer protection laws. 10 The results of examination activity by any of our federal or state bank regulators potentially can result in the imposition of significant limitations on our activities and growth.
The CFPB’s supervisory focus primarily involves an institution’s compliance with federal consumer protection laws. The results of examination activity by any of our federal or state bank regulators potentially can result in the imposition of significant limitations on our activities and growth.
The Federal Reserve has adopted an exception to this approval requirement for well-capitalized bank holding companies that meet certain conditions. 12 Bank Supervision and Regulation Generally The Bank is an Alabama state-chartered bank and, as such, is subject to examination and regulation by the Alabama Banking Department.
The Federal Reserve has adopted an exception to this approval requirement for well-capitalized bank holding companies that meet certain conditions. Bank Supervision and Regulation Generally The Bank is an Alabama state-chartered bank and, as such, is subject to examination and regulation by the Alabama Banking Department.
For purposes of calculating these limits, loans to various business interests of the borrower, including companies in which a substantial portion of the stock is owned or partnerships in which a person is a partner, must be aggregated with those made to the borrower individually.
For purposes of calculating these limits, loans to various business interests of a single borrower, including companies in which a substantial portion of the stock is owned or partnerships in which a person is a partner, must be aggregated with those made to the borrower individually.
We also seek to capitalize on the extensive relationships that our management, directors, advisory directors and stockholders have with the businesses and professionals in our markets. Focus on Core Banking Business. We deliver a broad array of core banking products to our customers.
We also seek to capitalize on the extensive relationships that our management, directors, advisory directors and stockholders have with the businesses and professionals in our markets. 5 Focus on Core Banking Business. We deliver a broad array of core banking products to our customers.
In addition, we generally will require personal guarantees from the principal owners of the property supported by a review by our management of the principal owners’ personal financial statements. Commercial real estate lending presents risks not found in traditional residential real estate lending.
In addition, we generally require personal guarantees from the principal owners of the property supported by a review by our management of the principal owners’ personal financial statements. Commercial real estate lending presents risks not found in traditional residential real estate lending.
Stockholders may request hard copies of our filings, free of charge, by contacting our Senior Vice President of Investor Relations, Davis Mange, at 2500 Woodcrest Place, Birmingham, AL 35209, telephone (205) 949-3420. 23
Stockholders may request hard copies of our filings, free of charge, by contacting our Senior Vice President of Investor Relations, Davis Mange, at 2500 Woodcrest Place, Birmingham, AL 35209, telephone (205) 949-3420.
We maintain a social distancing policy and update our procedures as federal and state agencies make new recommendations. 22 Compensation and Benefits We provide robust compensation and benefits programs to help meet the needs of our employees.
We maintain a social distancing policy and update our procedures as federal and state agencies make new recommendations. Compensation and Benefits We provide robust compensation and benefits programs to help meet the needs of our employees.
Broughton’s experience in banking has afforded him opportunities to work in many areas of banking and has given him exposure to all bank functions. Mr. Broughton served on the Board of Directors of Cavalier Homes, Inc. from 1986 until 2009, when the company was sold to a subsidiary of Berkshire Hathaway. William M. Foshee (68) – Mr.
Broughton’s experience in banking has afforded him opportunities to work in many areas of banking and has given him exposure to all bank functions. Mr. Broughton served on the Board of Directors of Cavalier Homes, Inc. from 1986 until 2009, when the company was sold to a subsidiary of Berkshire Hathaway. William M. Foshee (69) – Mr.
Our ability to pay dividends is also subject to the provisions of Delaware corporate law. The Alabama Banking Department also regulates the Bank’s dividend payments.
Our ability to pay dividends is also subject to the provisions of Delaware corporate law. 17 The Alabama Banking Department also regulates the Bank’s dividend payments.
At the time of his departure in March 2011, the correspondent banking division of BBVA Compass provided correspondent banking services to over 600 financial institutions. Henry Abbott (42) – Mr. Abbott has served as Senior Vice President and Chief Credit Officer for us and the bank since April 2018.
At the time of his departure in March 2011, the correspondent banking division of BBVA Compass provided correspondent banking services to over 600 financial institutions. Henry Abbott (41) – Mr. Abbott has served as Senior Vice President and Chief Credit Officer for us and the Bank since April 2018.
Asset, Liability and Risk Management We manage our assets and liabilities with the aim of providing an optimum and stable net interest margin, a profitable after-tax return on assets and return on equity, and adequate liquidity. These management functions are conducted within the framework of written loan and investment policies.
Asset, Liability and Risk Management We manage our assets and liabilities with the aim of providing an optimum and stable net interest margin, a profitable after-tax return on assets and return on equity, and adequate liquidity. These management strategies are conducted within the framework of written loan and investment policies.
Federal Laws Applicable to Consumer Credit and Deposit Transactions The Bank’s loan and deposit operations are subject to a number of federal consumer protection laws and regulations, including, among others: ● the Truth-In-Lending Act, as implemented by Regulation Z issued by the CFPB, governing, among other things, the disclosure of credit terms to consumers; ● the Real Estate Settlement Procedures Act, as implemented by Regulation X issued by the CFPB, prescribing, among other things, requirements in connection with residential mortgage loan applications, settlements, and servicing; ● the Home Mortgage Disclosure Act, as implemented by Regulation C issued by the CFPB, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; ● the Equal Credit Opportunity Act, as implemented by Regulation B issued by the CFPB, prohibiting discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or certain other prohibited factors in all aspects of credit transactions, imposing certain requirements regarding credit applications, and prescribing certain disclosure obligations; ● the Fair Credit Reporting Act, as implemented in part by Regulation V issued by the CFPB, governing the use and provision of information to credit reporting agencies by imposing, among other things, requirements for financial institutions to develop policies and procedures to identify potential identity theft, requirements for entities that furnish information to consumer reporting agencies (which would include the Bank) to implement procedures and policies regarding the accuracy and integrity of the furnished information and respond to disputes from consumers regarding credit reporting issues, requirements for mortgage lenders to disclose credit scores to consumers, and limitations on the ability of a business that receives consumer information from an affiliate to use that information for marketing purposes; 14 ● the Fair Debt Collection Practices Act, as implemented in part by Regulation F issued by the CFPB, governing the manner in which consumer debts may be collected by debt collectors; ● the Servicemembers’ Civil Relief Act, governing the repayment terms of, and property rights underlying, secured obligations of persons in military service; ● the Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; ● the Electronic Funds Transfer Act, as implemented by Regulation E issued by the CFPB, governing automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and ● the Truth in Savings Act, as implemented by Regulation DD issued by the CFPB, governing, among other things, the disclosure of deposit terms to consumers.
Federal Laws Applicable to Consumer Credit and Deposit Transactions The Bank’s loan and deposit operations are subject to a number of federal consumer protection laws and regulations, including, among others: ● the Truth-In-Lending Act, as implemented by Regulation Z issued by the CFPB, governing, among other things, the disclosure of credit terms to consumers; 14 ● the Real Estate Settlement Procedures Act, as implemented by Regulation X issued by the CFPB, prescribing, among other things, requirements in connection with residential mortgage loan applications, settlements, and servicing; ● the Home Mortgage Disclosure Act, as implemented by Regulation C issued by the CFPB, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; ● the Equal Credit Opportunity Act, as implemented by Regulation B issued by the CFPB, prohibiting discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or certain other prohibited factors in all aspects of credit transactions, imposing certain requirements regarding credit applications, and prescribing certain disclosure obligations; ● the Fair Credit Reporting Act, as implemented in part by Regulation V issued by the CFPB, governing the use and provision of information to credit reporting agencies by imposing, among other things, requirements for financial institutions to develop policies and procedures to identify potential identity theft, requirements for entities that furnish information to consumer reporting agencies (which would include the Bank) to implement procedures and policies regarding the accuracy and integrity of the furnished information and respond to disputes from consumers regarding credit reporting issues, requirements for mortgage lenders to disclose credit scores to consumers, and limitations on the ability of a business that receives consumer information from an affiliate to use that information for marketing purposes; ● the Fair Debt Collection Practices Act, as implemented in part by Regulation F issued by the CFPB, governing the manner in which consumer debts may be collected by debt collectors; ● the Servicemembers’ Civil Relief Act, governing the repayment terms of, and property rights underlying, secured obligations of persons in military service; ● the Right to Financial Privacy Act, imposing a duty to maintain the confidentiality of consumer financial records and prescribing procedures for complying with administrative subpoenas of financial records; ● the Electronic Funds Transfer Act, as implemented by Regulation E issued by the CFPB, governing automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; ● the Truth in Savings Act, as implemented by Regulation DD issued by the CFPB, governing, among other things, the disclosure of deposit terms to consumers; ● the Fair Housing Act, prohibiting discrimination in most housing-related activities, including financing, based on race, color, sex, national origin or religion; and ● the Equal Credit Opportunity Act, as implemented by Regulation B issued by the CFPB, prohibiting discrimination in any aspect of a credit transaction.
As a result of these requirements, a bank holding company may, among other things, be compelled to loan money to a bank subsidiary in the form of subordinate capital notes or other instruments which qualify as capital under bank regulatory rules.
As a result of these requirements, a bank holding company may, among other things, be compelled to loan money to a bank subsidiary in the form of subordinate capital notes or other instruments that qualify as capital under bank regulatory rules.
We intend to continue our growth by repeating this scalable model in each market in which we are able to identify a strong banking team. Our goal in each market is to employ the highest quality bankers in that market.
We intend to continue our growth by repeating this scalable model in each market where we are able to identify a strong banking team. Our goal in each market is to employ the highest quality bankers in that market.
The U.S. bank regulatory agencies issued additional guidance titled “Statement on Prudent Risk Management for Commercial Real Estate Lending” to remind financial institutions of existing guidance on prudent risk management practices for CRE lending activity.
The U.S. bank regulatory agencies issued additional guidance entitled “Statement on Prudent Risk Management for Commercial Real Estate Lending” to remind financial institutions of existing guidance on prudent risk management practices for CRE lending activity.
ITEM 1. BUSINESS Overview We are a bank holding company within the meaning of the Bank Holding Company Act of 1956 and are headquartered in Birmingham, Alabama. Through our wholly-owned subsidiary bank, we operate 26 full-service banking offices located in Alabama, Florida, Georgia, North Carolina, South Carolina, and Tennessee. We also operate loan production offices in Florida.
ITEM 1. BUSINESS Overview We are a bank holding company within the meaning of the Bank Holding Company Act of 1956 and are headquartered in Birmingham, Alabama. Through our wholly-owned subsidiary bank, we operate 30 full-service banking offices located in Alabama, Florida, Georgia, North Carolina, South Carolina, Tennessee, and Virginia. We also operate loan production offices in Florida.
To mitigate this risk, we underwrite collateral to strict standards, including valuations and general acceptability based on our ability to monitor its ongoing condition and value. We underwrite our commercial loans primarily on the basis of the borrower’s cash flow, ability to service debt, and degree of management expertise.
To mitigate this risk, we have strict collateral underwriting standards, including valuations and general acceptability based on our ability to monitor its ongoing condition and value. 8 We underwrite our commercial loans primarily on the basis of the borrower’s cash flow, ability to service debt, and degree of management expertise.
Accordingly, the following discussion must be read in light of the enactment of any new federal or state banking laws or regulations or any amendment or repeal of existing laws or regulations, or any change in the policies of the regulatory agencies with jurisdiction over our operations, after the date of this annual report on Form 10-K.
Accordingly, the following discussion must be read in light of the enactment of any new federal or state banking laws or regulations or any amendment or repeal of existing laws or regulations, or any change in the policies of the regulatory agencies with jurisdiction over our operations, after the date of this Form 10-K.
These institutions, as well as other competitors of ours, have greater resources, serve broader geographic markets, have higher lending limits, offer various services that we do not offer and can better afford, and make broader use of, media advertising, support services, and electronic technology than we can.
These institutions, as well as other competitors of ours, may have greater resources, serve broader geographic markets, have higher lending limits, offer various services that we do not offer and may better afford, and make broader use of, media advertising, support services, and electronic technology than us.
There were $1.2 million in construction loans rated as substandard at December 31, 2022 and were no construction loans rated as substandard at December 31, 2021. Residential Real Estate Loans . Our residential real estate loans consist primarily of residential second mortgage loans, residential construction loans and traditional mortgage lending for one-to-four family residences.
There were $1.1 million in construction loans rated as substandard at December 31, 2023 and $1.2 million construction loans rated as substandard at December 31, 2022. Residential Real Estate Loans . Our residential real estate loans consist primarily of residential second mortgage loans, residential construction loans and traditional mortgage lending for one-to-four family residences.
Our banking regulators evaluate the effectiveness of our policies and procedures when determining whether to approve certain proposed banking activities. We believe the policies and procedures implemented by our board of directors are sufficient to be compliant with these laws.
Our banking regulators evaluate the effectiveness of our policies and procedures when determining whether to approve certain proposed banking activities, including branch application. We believe the policies and procedures implemented by our board of directors are sufficient to be compliant with these laws.
Since opening our original banking facility in Birmingham in 2005, we have expanded into ten additional markets as of December 31, 2022.
Since opening our original banking facility in Birmingham in 2005, we have expanded into ten additional markets as of December 31, 2023.
In many instances the EGRRCPA increased the Dodd-Frank mandated asset thresholds, to which enhanced supervision and prudential standards are applied. Previously, bank holding companies with assets of $10 billion or more were subject to stress testing. The asset threshold has been increased to $250 billion.
In many instances the EGRRCPA increased the Dodd-Frank mandated asset thresholds, to which enhanced supervision and prudential standards are applied. Previously, bank holding companies with assets of $10 billion or more were subject to stress testing.
In addition, unlike many traditional community banks, we place a strong emphasis on originating commercial and industrial loans, which comprised approximately 26.9% of our total loan portfolio as of December 31, 2022. Scalable, Decentralized Business Model. We emphasize local decision-making by experienced bankers supported by centralized risk and credit oversight.
In addition, unlike many traditional community banks, we place a strong emphasis on originating commercial and industrial loans, which comprised approximately 24.2% of our total loan portfolio as of December 31, 2023. Scalable, Decentralized Business Model. We emphasize local decision-making by experienced bankers supported by centralized risk and credit oversight.
Based on this, our bank would be limited to paying $559.5 million in dividends as of December 31, 2022, subject to maintaining certain required capital levels. In addition, no dividends, withdrawals or transfers may be made from the bank’s surplus without the prior written approval of the Superintendent.
Based on this, our bank would be limited to paying $573.9 million in dividends as of December 31, 2023, subject to maintaining certain required capital levels. In addition, no dividends, withdrawals or transfers may be made from the bank’s surplus without the prior written approval of the Superintendent.
Since the initial implementation of the Basel III Capital Rules, the U.S. federal banking agencies and other interested parties have proposed and, in certain cases, made changes to the rules based on a number of factors, including prevailing economic conditions and policy initiatives.
We and the Bank are currently in compliance with Basel III Capital Rules. Since the initial implementation of the Basel III Capital Rules, the U.S. federal banking agencies and other interested parties have proposed and, in certain cases, made changes to the rules based on a number of factors, including prevailing economic conditions and policy initiatives.
Financial institutions, such as the bank, are required by statute and regulation to notify consumers of their privacy policies and practices and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party.
Financial institutions, such as the Bank, are required by statute and regulation to notify consumers of their privacy policies and practices and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party. In addition, such financial institutions must appropriately safeguard their customers’ nonpublic, personal information.
Additionally, we must file an election with the Federal Reserve to become a financial holding company and must provide the Federal Reserve with 30 days written notice prior to engaging in a permitted financial activity. We have not elected to become a financial holding company at this time.
Additionally, we must file an election with the Federal Reserve to become a financial holding company and must provide the Federal Reserve with 30 days written notice prior to engaging in a permitted financial activity.
As of December 31, 2022, we had 571 full-time equivalent employees. We have 201 employees located in our corporate office, including sales and operations, and 370 in our regional offices and branches. Our management believes that we have good relations with our employees.
As of December 31, 2023, we had 591 full-time equivalent employees. We have 205 employees located in our corporate office, including sales and operations, and 386 in our regional offices and branches. Our management believes that we have good relations with our employees.
We have direct links on this website to our Code of Ethics and the charters for our Audit, Compensation and Corporate Governance and Nominations Committees, accessible by clicking on “Investor Relations” in the drop down menu.
We have direct links on this website to our Code of Ethics and the charters for our Audit, Compensation and Corporate Governance and Nominations Committees, accessible on the “Investor Relations” section of our website.
The Bank became subject to the large bank scorecard methodology in the second quarter of 2021. The amount the Bank pays to the FDIC in assessments is affected not only by the risk the Bank poses to the Deposit Insurance Fund, but also by the adequacy of the fund to cover the risk posed by all insured institutions.
The amount the Bank pays to the FDIC in assessments is affected not only by the risk the Bank poses to the Deposit Insurance Fund, but also by the adequacy of the fund to cover the risk posed by all insured institutions.
These factors are also considered in evaluating mergers, acquisitions, and applications to open an office or facility. Failure to adequately meet these criteria could impose additional requirements and limitations on the Bank. Additionally, we must publicly disclose the terms of various CRA-related agreements.
These factors are also considered in evaluating mergers, acquisitions, and applications to open an office or facility. Failure to adequately meet these criteria could impose additional requirements and limitations on the Bank. Additionally, we must publicly disclose the terms of various CRA-related agreements. On October 24, 2023, the federal banking agencies adopted a final rule to modernize the CRA regulations.
These revisions became effective on January 1, 2020, with a required compliance date of January 1, 2021. 20 To date, the prohibitions under the Volcker Rule and the final rule adopted thereunder have not had, and we do not currently expect them to have in the future, a material effect on our businesses or revenue, but they do limit the scope of permissible activities in which we might engage.
To date, the prohibitions under the Volcker Rule and the final rule adopted thereunder have not had, and we do not currently expect them to have in the future, a material effect on our businesses or revenue, but they do limit the scope of permissible activities in which we might engage.
Various bank regulatory publications, including FDIC Financial Institution Letter FIL-13-2010 (Funding and Liquidity Risk Management) and FDIC Financial Institution Letter FIL-84-2008 (Liquidity Risk Management), address the identification, measurement, monitoring and control of funding and liquidity risk by financial institutions. Basel III also addresses liquidity management by proposing two new liquidity metrics for financial institutions.
Various bank regulatory publications, including FDIC Financial Institution Letter FIL-13-2010 (Funding and Liquidity Risk Management) and FDIC Financial Institution Letter FIL-84-2008 (Liquidity Risk Management), address the identification, measurement, monitoring and control of funding and liquidity risk by financial institutions.
The rule became effective on April 1, 2022, with compliance required by May 1, 2022. From an operational standpoint, cyberattacks and similar attempts to gain access to confidential customer information maintained by banks and other financial institutions have prompted the federal banking agencies to issue extensive guidance on cybersecurity.
From an operational standpoint, cyberattacks and similar attempts to gain access to confidential customer information maintained by banks and other financial institutions have prompted the federal banking agencies to issue extensive guidance on cybersecurity.
In addition, we provide correspondent banking services to more than 350 community banks located in 27 states throughout the United States. We provide a source of clearing and liquidity to our correspondent bank customers, as well as a wide array of account, credit, settlement and international services. 5 Commercial Bank Emphasis.
In addition, we provide correspondent banking services to more than 370 community banks located in 30 states throughout the United States. We provide a source of clearing and liquidity to our correspondent bank customers, as well as a wide array of account, credit, settlement and international services. Commercial Bank Emphasis. We have historically focused on people as opposed to places.
If, in the opinion of the federal banking agencies, the bank were engaged in or about to engage in an unsafe or unsound practice, the federal banking agencies could require, after notice and a hearing, that the bank stop or refrain from engaging in the questioned practice. 17 Restrictions on Transactions with Affiliates and Insiders We are subject to Section 23A of the Federal Reserve Act, which places limits on the amount of: a bank’s loans or extensions of credit to affiliates; a bank’s investment in affiliates; assets a bank may purchase from affiliates, except for real and personal property exempted by the Federal Reserve; loans or extensions of credit made by a bank to third parties collateralized by the securities or obligations of affiliates; a bank’s guarantee, acceptance or letter of credit issued on behalf of an affiliate; a bank’s transactions with an affiliate involving the borrowing or lending of securities to the extent they create credit exposure to the affiliate; and a bank’s derivative transactions with an affiliate to the extent they create credit exposure to the affiliate.
Restrictions on Transactions with Affiliates and Insiders We are subject to Section 23A of the Federal Reserve Act, which places limits on the amount of: a bank’s loans or extensions of credit to affiliates; a bank’s investment in affiliates; assets a bank may purchase from affiliates, except for real and personal property exempted by the Federal Reserve; loans or extensions of credit made by a bank to third parties collateralized by the securities or obligations of affiliates; a bank’s guarantee, acceptance or letter of credit issued on behalf of an affiliate; a bank’s transactions with an affiliate involving the borrowing or lending of securities to the extent they create credit exposure to the affiliate; and a bank’s derivative transactions with an affiliate to the extent they create credit exposure to the affiliate.
Support of Subsidiary Institutions The Federal Deposit Insurance Act and Federal Reserve policy require a bank holding company to act as a source of financial and managerial strength to its bank subsidiaries.
We have not elected to become a financial holding company at this time. 12 Support of Subsidiary Institutions The Federal Deposit Insurance Act and Federal Reserve policy require a bank holding company to act as a source of financial and managerial strength to its bank subsidiaries.
Generally, collateral consists of business assets, including accounts receivable, inventory, equipment, or real estate. Collateral is subject to the risk that we may have difficulty converting it to a liquid asset if necessary, as well as risks associated with degree of specialization, mobility and general collectability in a default situation.
Collateral is subject to the risk that we may have difficulty converting it to a liquid asset if necessary, as well as risks associated with degree of specialization, mobility and general collectability in a default situation.
Supervision and Regulation Both we and our bank are subject to extensive state and federal banking laws and regulations that impose restrictions on, and provide for general regulatory oversight of, our operations.
Seasonality and Cycles We do not consider our commercial banking business to be seasonal. 10 Supervision and Regulation Both we and our bank are subject to extensive state and federal banking laws and regulations that impose restrictions on, and provide for general regulatory oversight of, our operations.
Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits, and certain other restrictions on its business.
The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance-sheet items. 15 Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits, and certain other restrictions on its business.
The Basel III Capital Rules also provide a permanent exemption from a proposed phase out of existing trust preferred securities and cumulative perpetual preferred stock from regulatory capital for banking organizations with less than $15 billion in total consolidated assets as of December 31, 2009. 15 The Basel III Capital Rules provide for the following minimum capital to risk-weighted assets ratios: ● 4.5% based upon CET1; ● 6.0% based upon tier 1 capital; and ● 8.0% based upon total regulatory capital.
The Basel III Capital Rules also provide a permanent exemption from a proposed phase out of existing trust preferred securities and cumulative perpetual preferred stock from regulatory capital for banking organizations with less than $15 billion in total consolidated assets as of December 31, 2009.
Risks associated with these loans are generally less significant than those of other loans and involve bankruptcies, economic downturn, customer financial problems and fluctuations in the value of real estate, and homes in our primary service areas may experience significant price declines in the future. We have not made and do not expect to make any “Alt-A” or subprime loans.
Risks associated with these loans are generally less significant than those of other loans. Those risks involve bankruptcies, economic downturn, customer financial problems and fluctuations in the value of real estate, and the risk that homes in our primary service areas may experience significant price declines in the future.
A bank holding company must guarantee that a subsidiary depository institution meets its capital restoration plan, subject to various limitations. The controlling holding company’s obligation to fund a capital restoration plan is limited to the lesser of (i) 5% of an undercapitalized subsidiary’s assets at the time it became undercapitalized and (ii) the amount required to meet regulatory capital requirements.
The controlling holding company’s obligation to fund a capital restoration plan is limited to the lesser of (i) 5% of an undercapitalized subsidiary’s assets at the time it became undercapitalized and (ii) the amount required to meet regulatory capital requirements.
A number of the effects of the Dodd-Frank Act are described or otherwise accounted for in various parts of this Supervision and Regulation section.
The asset threshold has been increased to $250 billion. 21 A number of the effects of the Dodd-Frank Act are described or otherwise accounted for in various parts of this Supervision and Regulation section.
We have historically focused on people as opposed to places. This strategy translates into a smaller number of brick and mortar branch locations relative to our size, but larger overall branch sizes in terms of total deposits. As a result, as of December 31, 2022, our branches averaged approximately $444.1 million in total deposits.
This strategy translates into a smaller number of brick and mortar branch locations relative to our size, but larger overall branch sizes in terms of total deposits. As a result, as of December 31, 2023, our branches averaged approximately $442.5 million in total deposits.
They also prohibit us from engaging in transactions with certain designated restricted countries and persons. We are required by our regulators to maintain policies and procedures to comply with the foregoing restrictions. Failure to comply with these statutes, rules and regulations, or failure to maintain an adequate compliance program, could lead to monetary penalties and reputational damage to our bank.
We are required by our regulators to maintain policies and procedures to comply with the foregoing restrictions. 19 Failure to comply with these statutes, rules and regulations, or failure to maintain an adequate compliance program, could lead to monetary penalties and reputational damage to our bank.
An undercapitalized institution also is generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except under an accepted capital restoration plan or with FDIC approval.
An undercapitalized institution also is generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except under an accepted capital restoration plan or with FDIC approval. The regulations also establish procedures for downgrading an institution to a lower capital category based on supervisory factors other than capital.
Specifically, we chart assets and liabilities on a matrix by maturity, effective duration, and interest adjustment period, and endeavor to manage any gaps in maturity ranges. Seasonality and Cycles We do not consider our commercial banking business to be seasonal.
Specifically, we chart assets and liabilities on a matrix by maturity, effective duration, and interest adjustment period, and endeavor to manage any gaps in maturity ranges.
In addition, any person or group of persons must obtain the approval of the Federal Reserve before acquiring 25% (5% in the case of an acquirer that is already a bank holding company) or more of the outstanding common stock of a bank holding company, or otherwise obtaining control or a “controlling influence” over the bank holding company. 11 Permissible Activities Under the BHC Act Under the BHC Act, a bank holding company is generally permitted to engage in or acquire direct or indirect control of more than 5% of the voting shares of any company engaged in the following activities: ● banking or managing or controlling banks; and ● any activity that the Federal Reserve determines to be so closely related to banking as to be a proper incident to the business of banking.
Permissible Activities Under the BHC Act Under the BHC Act, a bank holding company is generally permitted to engage in or acquire direct or indirect control of more than 5% of the voting shares of any company engaged in the following activities: ● banking or managing or controlling banks; and ● any activity that the Federal Reserve determines to be so closely related to banking as to be a proper incident to the business of banking.
We make loans to small- and medium-sized businesses in our markets for the purpose of upgrading plant and equipment, buying inventory and for general working capital. Typically, targeted business borrowers have annual sales generally between $2 million and $250 million.
We make seasonal loans, bridge loans, and term loans to small- and medium-sized businesses in our markets for a variety of business purposes, including, but not limited to, expanding business, acquiring property, upgrading plant and equipment, buying inventory and for general working capital. Typically, targeted business borrowers have annual sales between $2 million and $250 million.
Our investment policy provides that no more than 30% of our total investment portfolio may be composed of municipal securities. All securities held are traded in liquid markets, and we have no auction-rate securities. We had no investments in any one security, restricted or liquid, in excess of 10% of our stockholders’ equity at December 31, 2022.
All securities held are traded in liquid markets, and we have no auction-rate securities. We had no investments in any one security, restricted or liquid, in excess of 10% of our stockholders’ equity at December 31, 2023.
The first metric is the “Liquidity Coverage Ratio”, and it aims to require a financial institution to maintain sufficient high quality liquid resources to survive an acute stress scenario that lasts for one month.
Basel III also addresses liquidity management by proposing two new liquidity metrics for financial institutions. The first metric is the “Liquidity Coverage Ratio,” and it aims to require a financial institution to maintain sufficient high quality liquid resources to survive an acute stress scenario that lasts for one month.
To mitigate the risk of construction loan defaults in our portfolio, the board of directors and management tracks and monitors these loans closely. Total construction loans increased $429.2 million to $1.53 billion at December 31, 2022. There were no charge-offs on construction loans during 2022 and a net recovery of $38,000 in charge-offs during 2021.
To mitigate the risk of construction loan defaults in our portfolio, the board of directors and management tracks and monitors these loans closely. Total construction loans decreased $12.8 million, or 0.8%, at December 31, 2023, compared to December 31, 2022. There were $105,000 in net charge-offs on construction loans during 2023 and no charge-offs on construction loans during 2022.
Additionally, the BHC Act provides that the Federal Reserve may not approve a merger or other acquisition transaction if the transaction would result in or tend to create a monopoly or substantially lessen competition or otherwise function as a restraint of trade, unless the anti-competitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served.
The Federal Reserve’s consideration of financial resources generally focuses on capital adequacy, which is discussed in the section below titled “Supervision and Regulation—Bank Supervision and Regulation – Capital Adequacy.” The consideration of convenience and needs of the community to be served includes the institution’s performance under the Community Reinvestment Act (the “CRA”). 11 Additionally, the BHC Act provides that the Federal Reserve may not approve a merger or other acquisition transaction if the transaction would result in or tend to create a monopoly or substantially lessen competition or otherwise function as a restraint of trade, unless the anti-competitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served.
Securities and Exchange Commission (the “SEC”) to promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy materials; and (v) directs the federal banking agencies to issue rules prohibiting incentive compensation that encourages inappropriate risks. 21 ● Although insured depository institutions have long been subject to the FDIC’s resolution process, the Dodd-Frank Act creates a new mechanism for the FDIC to conduct the orderly liquidation of certain “covered financial companies,” including bank holding companies and systemically significant non-bank financial companies.
The Dodd-Frank Act (i) requires publicly traded companies to give stockholders a non-binding vote on executive compensation and golden parachute payments; (ii) enhances independence requirements for compensation committee members; (iii) requires companies listed on national securities exchanges to adopt incentive-based compensation clawback policies for executive officers; (iv) authorizes the SEC to promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy materials; and (v) directs the federal banking agencies to issue rules prohibiting incentive compensation that encourages inappropriate risks. ● Although insured depository institutions have long been subject to the FDIC’s resolution process, the Dodd-Frank Act creates a new mechanism for the FDIC to conduct the orderly liquidation of certain “covered financial companies,” including bank holding companies and systemically significant non-bank financial companies.
It cannot be determined at this time whether compliance with such policies will adversely affect the company’s or the bank’s ability to hire, retain and motivate its key employees.
The scope and content of the U.S. banking agencies’ policies on compensation may continue to evolve in the near future. It cannot be determined at this time whether compliance with such policies will adversely affect the company’s or the bank’s ability to hire, retain and motivate its key employees.
In our markets, our five largest competitors are Regions Bank, Wells Fargo Bank, PNC, Truist and Synovus Bank.
In our markets, our five largest competitors are Regions Financial Corporation, Wells Fargo & Company, PNC Financial Services Group, Inc., Truist Financial Corporation, and Synovus Financial Corp.
The rule prohibits financial institutions from charging fees for paying overdrafts on ATM and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.
The rule prohibits financial institutions from charging fees for paying overdrafts on ATM and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions. There has been an enhanced focus by federal bank regulatory agencies with respect to industry practices relating to overdraft fees and non-sufficient funds fees.
The description is not intended to summarize all laws, regulations and supervisory policies applicable to us and is qualified in its entirety by reference to the full text of the statutes, regulations and supervisory policies described.
The description is not intended to summarize all laws, regulations and supervisory policies applicable to us and is qualified in its entirety by reference to the full text of the statutes, regulations and supervisory policies described. Further, the following discussion addresses the select material elements of the regulatory framework as in effect as of the date of this Form 10-K.
However, compliance with the Dodd-Frank Act and its implementing regulations has resulted in, and is expected to continue to result in, additional operating and compliance costs that could have a material adverse effect on our business, financial condition and results of operations.
However, compliance with the Dodd-Frank Act and its implementing regulations has resulted in, and is expected to continue to result in, additional operating and compliance costs that could have a material adverse effect on our business, financial condition and results of operations. 22 Regulation Extends Beyond Banking Agencies In addition to regulations issued by the Alabama Banking Department and federal banking agencies, we are subject to regulations issued by other state and federal agencies with respect to certain financial products and services we offer and our operations generally.
As of December 31, 2022, we had total assets of approximately $14.6 billion, total loans of approximately $11.7 billion, total deposits of approximately $11.5 billion and total stockholders’ equity of approximately $1.3 billion.
As of December 31, 2023, we had total assets of approximately $16.13 billion, total loans of approximately $11.66 billion, total deposits of approximately $13.27 billion, and total stockholders’ equity of approximately $1.44 billion.
Generally, subject to a narrow exception, the banking regulator must appoint a receiver or conservator for an institution that is critically undercapitalized. An institution that is categorized as undercapitalized, significantly undercapitalized, or critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal banking agency.
An institution that is categorized as undercapitalized, significantly undercapitalized, or critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal banking agency. A bank holding company must guarantee that a subsidiary depository institution meets its capital restoration plan, subject to various limitations.
Foshee served as the Chief Financial Officer of Heritage Financial Holding Corporation, a publicly traded bank holding company headquartered in Decatur, Alabama, from 2002 until it was acquired in 2005. Mr. Foshee is a Certified Public Accountant. Rodney E. Rushing (65) – Mr. Rushing has served as our Executive Vice President and Chief Operating Officer since February 2021.
Foshee served as the Chief Financial Officer of Heritage Financial Holding Corporation, a publicly traded bank holding company headquartered in Decatur, Alabama, from 2002 until it was acquired in 2005. Mr. Foshee is a Certified Public Accountant. Mr. Foshee will retire from his position as Chief Financial Officer effective as of the filing of this Form 10-K.
To offset these competitive disadvantages, we depend on our reputation for greater personal service, consistency, flexibility and the ability to make credit and other business decisions quickly. Lending Services Commercial Loans Our commercial lending activity is directed principally toward businesses and professional service firms whose demand for funds falls within our legal lending limits.
To offset these competitive disadvantages, we depend on our reputation for greater personal service, consistency, flexibility and the ability to make credit and other business decisions quickly.
We recruit the best people for the job regardless of gender, race, ethnicity, age, disability, sexual orientation, gender identity, cultural background or religious belief. It is our policy to fully comply with all state and federal laws applicable to discrimination in the workplace.
We recruit the best people for the job regardless of gender, race, ethnicity, age, disability, sexual orientation, gender identity, cultural background or religious belief.
The following table illustrates our market share, by insured deposits, in our primary service areas at June 30, 2022 as most recently reported by the FDIC: Market Number of Branches Our Market Deposits Total Market Deposits Ranking Market Share Percentage (Dollars in Millions) Alabama: Birmingham-Hoover MSA 3 $ 5,230.3 $ 50,115.4 3 8.86 % Huntsville MSA 2 1,237.0 11,726.9 2 9.88 % Montgomery MSA 2 1,150.8 9,548.6 2 10.70 % Dothan MSA 2 863.9 4,358.7 1 17.03 % Mobile MSA 2 526.5 10,903.6 6 4.18 % Daphne-Fairhope-Foley MSA 1 90.6 6,900.4 18 0.77 % Florida: Pensacola-Ferry Pass-Brent MSA 2 602.1 8,609.0 7 6.39 % Tampa-St.
The following table illustrates our market share, by insured deposits, in our primary service areas at June 30, 2023 as most recently reported by the FDIC: Market Number of Branches Our Market Deposits Total Market Deposits Ranking Market Share Percentage (Dollars in Millions) Alabama: Birmingham-Hoover MSA 3 $ 4,094.4 $ 47,048.6 3 8.70 % Huntsville MSA 2 1,661.6 10,269.5 2 16.18 % Montgomery MSA 2 1,185.7 11,127.2 2 10.66 % Dothan MSA 2 896.7 4,229.7 1 21.20 % Mobile MSA 2 548.0 9,938.3 6 5.51 % Daphne-Fairhope-Foley MSA 1 99.4 6,793.1 17 1.46 % Florida: Pensacola-Ferry Pass-Brent MSA 2 592.7 9,368.2 7 6.33 % North Port-Sarasota-Bradenton MSA 1 577.7 29,873.6 13 1.93 % Tampa-St.
No investment in any of those instruments will exceed any applicable limitation imposed by law or regulation. Our board of directors reviews the investment portfolio on an ongoing basis in order to ensure that the investments conform to the policy as set by the board of directors.
Our board of directors reviews the investment portfolio on an ongoing basis in order to ensure that the investments conform to the policy as set by the board of directors. Our investment policy provides that no more than 30% of our total investment portfolio may be composed of municipal securities.
Petersburg-Clearwater MSA 1 308.3 130,750.0 30 0.34 % North Port-Sarasota-Bradenton MSA 1 233.1 31,681.4 22 0.45 % Crestview-Fort Walton Beach-Destin MSA 1 82.1 8,749.3 20 0.73 % Georgia: Atlanta-Sandy Springs-Alpharetta MSA 2 686.1 244,180.9 25 0.27 % Columbus, GA-AL 1 15.4 8,406.1 14 0.18 % South Carolina: Charleston-North Charleston MSA 2 344.0 22,657.0 13 1.5 % Tennessee: Nashville-Davidson-Murfreesboro MSA 1 416.2 92,625.5 27 0.7 % 7 The following table illustrates the combined total deposits for all financial institutions in the counties in which we operate as a percent of the total of all deposits in each state at June 30, 2022, as reported by the FDIC: Alabama 61.6 % Florida 15.9 % Georgia 10.4 % North Carolina 58.3 % South Carolina 16.1 % Tennessee 24.7 % Our retail and commercial divisions operate in highly competitive markets.
Petersburg-Clearwater MSA 1 364.7 123,859.1 28 0.29 % Panama City MSA 1 112.5 4,655.8 12 2.42 % Crestview-Fort Walton Beach-Destin MSA 1 86.4 7,770.3 15 1.11 % Tallahassee MSA 1 56.7 9,473.1 15 0.60 % Orlando-Kissimmee-Sanford MSA 1 35.0 72,941.6 42 0.05 % Georgia: Atlanta-Sandy Springs-Alpharetta MSA 2 872.2 237,133.6 23 0.37 % Columbus, GA-AL MSA 1 24.2 8,755.6 14 0.28 % North Carolina: Charlotte-Concord-Gastonia, NC-SC MSA 1 69.8 382,301.8 37 0.02 % South Carolina: Charleston-North Charleston MSA 2 344.0 22,657.0 14 1.46 % Tennessee: Nashville-Davidson-Murfreesboro MSA 1 416.2 92,625.5 23 0.67 % Virginia: Virginia Beach-Norfolk-Newport News, VA-NC 1 2.3 33,275.8 21 0.01 % 7 The following table illustrates the combined total deposits for all financial institutions in the counties in which we operate as a percent of the total of all deposits in each state at June 30, 2023, as reported by the FDIC: Alabama 60.5 % Florida 16.1 % Georgia 11.6 % North Carolina 58.9 % South Carolina 15.1 % Tennessee 25.2 % Virginia 2.8 % Our retail and commercial divisions operate in highly competitive markets.
Further, the following discussion addresses the select material elements of the regulatory framework as in effect as of the date of this annual report on Form 10-K. Legislation and regulatory action to revise federal and state banking laws and regulations, sometimes in a substantial manner, are continually under consideration by the U.S.
Legislation and regulatory action to revise federal and state banking laws and regulations, sometimes in a substantial manner, are continually under consideration by the U.S. Congress, state legislatures and federal and state regulatory agencies.
Commitments and Contingencies As of December 31, 2022, we had commitments to extend credit beyond current amounts funded of $4.2 billion, had issued standby letters of credit in the amount of $67.3 million, and had commitments for credit card arrangements of $368.7 million. 9 Investments In addition to loans, we purchase investments in securities, primarily in mortgage-backed securities and state and municipal securities.
These types of consumer loans all carry varying degrees of risk. Commitments and Contingencies As of December 31, 2023, we had commitments to extend credit beyond current amounts funded of $3.4 billion, had issued standby letters of credit in the amount of $86.1 million, and had commitments for credit card arrangements of $381.5 million.
Termination of Deposit Insurance The FDIC may terminate its insurance of deposits of a bank if it finds that the bank has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. 13 Liability of Commonly Controlled Depository Institutions Under the Federal Deposit Insurance Act, an FDIC-insured depository institution can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to any commonly controlled FDIC-insured depository institution in danger of default.
Any future increases could have a negative impact on our bank’s earnings. 13 Termination of Deposit Insurance The FDIC may terminate its insurance of deposits of a bank if it finds that the bank has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
A minimum leverage ratio (tier 1 capital as a percentage of total assets) of 4.0% is also required under the Basel III Capital Rules. The Basel III Capital Rules additionally require institutions to retain a capital conservation buffer of 2.5% above these required minimum capital ratio levels.
The Basel III Capital Rules additionally require institutions to retain a capital conservation buffer of 2.5% above these required minimum capital ratio levels. The capital conservation buffer, which must consist of CET1, is designed to absorb losses during periods of economic stress.
Applications to establish such branches must still be filed with the appropriate primary state and federal banking agencies. As noted above, the implementation of the Dodd-Frank Act is ongoing, and certain provisions of the Dodd-Frank Act are still subject to rulemaking.
Applications to establish such branches must still be filed with the appropriate primary state and federal banking agencies. On March 30, 2023, the CFPB issued a final rule implementing Section 1071 of the Dodd-Frank Act.
The capital conservation buffer, which must consist of CET1, is designed to absorb losses during periods of economic stress. Banking organizations that fail to maintain the minimum 2.5% capital conservation buffer could face restrictions on capital distributions or discretionary bonus payments to executive officers. We and the Bank are currently in compliance with Basel III Capital Rules.
Banking organizations that fail to maintain the minimum 2.5% capital conservation buffer could face restrictions on capital distributions or discretionary bonus payments to executive officers. The Basel III Capital Rules became effective as applied to us and the Bank on January 1, 2015, with a phase in period that generally extended from January 1, 2015 through January 1, 2019.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

62 edited+12 added−34 removed135 unchanged
Biggest changeVarious factors, such as economic conditions including inflation rates, regulatory and legislative considerations and competition, may impede or prohibit our ability to expand our market presence. We have different lending risks than larger banks. We provide services to our local communities; thus, our ability to diversify our economic risks is limited by our own local markets and economies.
Biggest changeWe may not be able to sustain our historical rate of growth and may not be able to further expand our business. Various factors, such as economic conditions, regulatory and legislative considerations and competition, may impede or prohibit our ability to expand our market presence. We have different lending risks than larger banks.
There are many factors that may impact the market price and trading volume of our common stock, including, without limitation: ● actual or anticipated fluctuations in our operating results, financial condition or asset quality; ● changes in economic or business conditions; ● the effects of, and changes in, trade, monetary and fiscal policies, including the interest rate policies of the Federal Reserve; ● publication of research reports about us, our competitors, or the financial services industry generally, or changes in, or failure to meet, securities analysts’ estimates of our financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage; ● operating and stock price performance of companies that investors deemed comparable to us; ● future issuances of our common stock or other securities; ● additions to or departures of key personnel; ● proposed or adopted changes in laws, regulations or policies affecting us; ● perceptions in the marketplace regarding our competitors and/or us; ● significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving our competitors or us; ● other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services; and ● other news, announcements or disclosures (whether by us or others) related to us, our competitors, our core market or the financial services industry.
There are many factors that may impact the market price and trading volume of our common stock, including, without limitation: ● actual or anticipated fluctuations in our operating results, financial condition or asset quality; ● changes in economic or business conditions; ● the effects of, and changes in, trade, monetary and fiscal policies, including the interest rate policies of the Federal Reserve; 34 ● publication of research reports about us, our competitors, or the financial services industry generally, or changes in, or failure to meet, securities analysts’ estimates of our financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage; ● operating and stock price performance of companies that investors deemed comparable to us; ● future issuances of our common stock or other securities; ● additions to or departures of key personnel; ● proposed or adopted changes in laws, regulations or policies affecting us; ● perceptions in the marketplace regarding our competitors and/or us; ● significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving our competitors or us; ● other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services; and ● other news, announcements or disclosures (whether by us or others) related to us, our competitors, our core market or the financial services industry.
We also may be required to invest significant management attention and resources to evaluate and make any changes necessary to comply with applicable laws and regulations, particularly as a result of regulations adopted under the Dodd-Frank Act resulting from our recent growth in total assets to over $10.0 billion.
We also may be required to invest significant management attention and resources to evaluate and make any changes necessary to comply with applicable laws and regulations, particularly as a result of regulations adopted under the Dodd-Frank Act resulting from our growth in total assets to over $10.0 billion.
If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans.
If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition and branching plans.
Any of these developments could have a material adverse effect on our business, financial condition, results of operations and prospects. 30 We may be adversely affected by the soundness of other financial institutions. Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions.
Any of these developments could have a material adverse effect on our business, financial condition, results of operations and prospects. We may be adversely affected by the soundness of other financial institutions. Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions.
See also “ Cautionary Note Regarding Forward-Looking Statements. ” Risks Related to Our Business We are dependent on the services of our management team and board of directors, and the unexpected loss of key officers or directors may adversely affect our business and operations.
See also “ Cautionary Note Regarding Forward-Looking Statements. ” 24 Risks Related to Our Business We are dependent on the services of our management team and board of directors, and the unexpected loss of key officers or directors may adversely affect our business and operations.
As a bank holding company, we are subject to federal regulation under the BHC Act, as amended, and the examination and reporting requirements of various federal and state agencies, including the FDIC and the Alabama Banking Department.
As a bank holding company, we are subject to federal regulation under the BHC Act, as amended, and the examination and reporting requirements of various federal and state agencies, including the FDIC, CFPB, and the Alabama Banking Department.
If we are required to re-value the collateral securing a loan to satisfy the debt during a period of reduced real estate values or to increase our allowance for credit losses, our profitability could be adversely affected, which could have a material adverse effect on our business, financial condition, results of operations and prospects. 24 Our largest loan relationships currently make up a significant percentage of our total loan portfolio.
If we are required to re-value the collateral securing a loan to satisfy the debt during a period of reduced real estate values or to increase our allowance for credit losses, our profitability could be adversely affected, which could have a material adverse effect on our business, financial condition, results of operations and prospects. 25 Our largest loan relationships currently make up a significant percentage of our total loan portfolio.
Those premiums and/or assessments could have a material adverse effect on the bank’s earnings, thereby reducing the availability of funds to pay dividends to us. 32 We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.
Those premiums and/or assessments could have a material adverse effect on the Bank’s earnings, thereby reducing the availability of funds to pay dividends to us. 33 We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.
In addition, a failure of our internal controls, or a circumvention of such controls, could have a material adverse effect on our business, financial condition, results of operations and prospects. 25 Our corporate structure provides for decision-making authority by our regional chief executive officers and banking teams.
In addition, a failure of our internal controls, or a circumvention of such controls, could have a material adverse effect on our business, financial condition, results of operations and prospects. 26 Our corporate structure provides for decision-making authority by our regional chief executive officers and banking teams.
The Federal Reserve, the FDIC and the Alabama Banking Department periodically examine our business, including our compliance with laws and regulations.
The Federal Reserve, the FDIC, CFPB, and the Alabama Banking Department periodically examine our business, including our compliance with laws and regulations.
This allocation of resources, as well as any failure to comply with applicable requirements, may negatively impact our financial condition and results of operations. 31 As a bank holding company, we are subject to certain capital requirements that may limit our operations.
This allocation of resources, as well as any failure to comply with applicable requirements, may negatively impact our financial condition and results of operations. 32 As a bank holding company, we are subject to certain capital requirements that may limit our operations.
We have opened new offices in Fort Walton, Florida, Venice, Florida, Sarasota, Florida, Orlando, Florida, Tallahassee, Florida, Columbus, Georgia, Charlotte, North Carolina, and Asheville, North Carolina in the past five years. We may not be able to successfully manage this growth without sufficient human resources, training and operational, financial and technological resources.
We have opened new offices in Fort Walton, Florida, Venice, Florida, Sarasota, Florida, Orlando, Florida, Tallahassee, Florida, Columbus, Georgia, Charlotte and Asheville, North Carolina, and Virginia Beach, Virginia in the past five years. We may not be able to successfully manage this growth with sufficient human resources, training and operational, financial and technological resources.
A prolonged downturn in the real estate market, especially in our primary markets, could result in losses and adversely affect our profitability. As of December 31, 2022, 59.4% of our loan portfolio was composed of commercial and consumer real estate loans, of which 48.2% was owner-occupied commercial or 1-4 family mortgage loans.
A prolonged downturn in the real estate market, especially in our primary markets, could result in losses and adversely affect our profitability. As of December 31, 2023, 62.2% of our loan portfolio was composed of commercial and consumer real estate loans, of which 48.4% was owner-occupied commercial or 1-4 family mortgage loans.
Since we originate loans secured by real estate, we may have to foreclose on the collateral property to protect our investment and may thereafter own and operate such property, in which case we are exposed to the risks inherent in the ownership of real estate. As of December 31, 2022, we held $248,000 in other real estate owned.
Since we originate loans secured by real estate, we may have to foreclose on the collateral property to protect our investment and may thereafter own and operate such property, in which case we are exposed to the risks inherent in the ownership of real estate. As of December 31, 2023, we held $955,000 in other real estate owned.
If either the bank or insured institutions as a whole present a greater risk to the Deposit Insurance Fund in the future than they do today, if the Deposit Insurance Fund becomes depleted in any material respect, or if other circumstances arise that lead the FDIC to determine that the Deposit Insurance Fund should be strengthened, the bank could be required to pay significantly higher deposit insurance premiums and/or additional special assessments to the FDIC.
If either the Bank or insured institutions as a whole present a greater risk to the Deposit Insurance Fund in the future than they do today, if the Deposit Insurance Fund becomes depleted in any material respect, or if other circumstances arise that lead the FDIC to determine that the Deposit Insurance Fund should be strengthened, the Bank could be required to pay significantly higher deposit insurance premiums and/or additional special assessments (such as the one imposed by the FDIC in 2023) to the FDIC.
We have positioned our asset portfolio to perform adequately in both a higher or lower interest rate environment, but this may not remain true in the future. Our interest sensitivity profile was somewhat asset sensitive as of December 31, 2022, generally meaning that our net interest income would increase more from rising interest rates than from falling interest rates.
We have positioned our asset portfolio to perform adequately in both a higher or lower interest rate environment, but this may not remain true in the future. Our interest sensitivity profile was somewhat liability sensitive as of December 31, 2023, generally meaning that our net interest income would decrease more from rising interest rates than from falling interest rates.
In particular, approximately 80% of the bank’s liabilities as of December 31, 2022 were checking accounts and other liquid deposits, which are payable on demand or upon several days’ notice, while by comparison, 80% of the assets of the bank were loans, which cannot be called or sold in the same time frame.
In particular, approximately 75% of the Bank’s liabilities as of December 31, 2023 were checking accounts and other liquid deposits, which are payable on demand or upon several days’ notice, while by comparison, 72% of the assets of the Bank were loans, which cannot be called or sold in the same time frame.
As of September 30, 2021, we were reclassified as a large financial institution by the FDIC, and now are subject to additional requirements including, but not limited to, establishing a dedicated risk committee of our board of directors, calculating our FDIC deposit insurance assessment using the large bank pricing rule, and more frequent regulatory examinations.
As of September 30, 2021, we exceeded $10 billion in total assets and were reclassified as a large financial institution by the FDIC, and now are subject to additional requirements including, but not limited to, establishing a dedicated risk committee of our board of directors, calculating our FDIC deposit insurance assessment using the large bank pricing rule, and more frequent regulatory examinations.
Our profitability depends upon our continued ability to successfully compete with an array of financial institutions in our service areas. 26 Our ability to compete successfully will depend on a number of factors, including, among other things: ● our ability to build and maintain long-term customer relationships while ensuring high ethical standards and safe and sound banking practices; ● the scope, relevance and pricing of products and services that we offer; ● customer satisfaction with our products and services; ● industry and general economic trends; and ● our ability to keep pace with technological advances and to invest in new technology Increased competition could require us to increase the rates that we pay on deposits or lower the rates that we offer on loans, which could reduce our profitability.
Our ability to compete successfully will depend on a number of factors, including, among other things: ● our ability to build and maintain long-term customer relationships while ensuring high ethical standards and safe and sound banking practices; ● the scope, relevance and pricing of products and services that we offer; ● customer satisfaction with our products and services; ● industry and general economic trends; and ● our ability to keep pace with technological advances and to invest in new technology Increased competition could require us to increase the rates that we pay on deposits or lower the rates that we offer on loans, which could reduce our profitability.
Worldwide financial markets have recently experienced periods of extraordinary disruption and volatility, which has been exacerbated by the COVID-19 pandemic, resulting in heightened credit risk, reduced valuation of investments, high rates of inflation and decreased economic activity.
Worldwide financial markets have recently experienced periods of extraordinary disruption and volatility, which has been exacerbated by the COVID-19 pandemic, resulting in heightened credit risk, reduced valuation of investments, supply chain issues and labor constraints, high rates of inflation and decreased economic activity.
Our entry into Pensacola and Tampa Bay, Florida, Mobile, Alabama and Charleston, South Carolina increased our exposure to potential losses associated with hurricanes and similar natural disasters that are more common in coastal areas than in our other markets.
Our entry into various markets in Florida and the Mobile, Alabama and Charleston, South Carolina markets increased our exposure to potential losses associated with hurricanes and similar natural disasters that are more common in coastal areas than in our other markets.
The fair value of our investment securities can fluctuate due to factors outside of our control. As of December 31, 2022, the fair value of our investment securities portfolio was approximately $1.58 billion.
The fair value of our investment securities can fluctuate due to factors outside of our control. As of December 31, 2023, the fair value of our investment securities portfolio was approximately $1.89 billion.
In addition, the bank must maintain certain capital levels, which may restrict the ability of the bank to pay dividends to us and our ability to pay dividends to our stockholders. As of December 31, 2022, our bank could pay approximately $559.5 million of dividends to us without prior approval of the Superintendent.
In addition, the Bank must maintain certain capital levels, which may restrict the ability of the Bank to pay dividends to us and our ability to pay dividends to our stockholders. As of December 31, 2023, our bank could pay approximately $573.9 million of dividends to us without prior approval of the Superintendent.
Lending authorities are assigned to regional chief executive officers and their banking teams based on their experience. Additionally, all loan relationships in excess of $5.0 million and every loan internally risk-graded as special mention or below are reviewed by our centralized credit administration department in Birmingham, Alabama.
Lending authorities are assigned to regional chief executive officers and their banking teams based on their experience. Additionally, all loan relationships in excess of $5.0 million and every loan with an internal risk-grade of special mention or below is reviewed by our centralized credit administration department in Birmingham, Alabama.
The occurrence of any failures or interruptions impacting our information systems could damage our reputation, result in a loss of customer business, and expose us to additional regulatory scrutiny, civil litigation, and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.
The occurrence of any failures or interruptions impacting our information systems could damage our reputation, result in a loss of customer business, and expose us to additional regulatory scrutiny, civil litigation, and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations. 28 We use information technology in our operations and offer online banking services to our customers.
The process for determining whether impairment of a security is related to credit losses or other factors usually requires complex, subjective judgments about the future financial performance and liquidity of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security.
The process for determining whether a security is impaired usually requires complex, subjective judgments about the future financial performance and liquidity of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security.
Our profitability, like that of most financial institutions, depends to a large extent on our net interest income, which is the difference between our interest income on interest-earning assets, such as loans and investment securities, and our interest expense on interest-bearing liabilities, such as deposits and borrowings.
We are subject to interest rate risk, which could adversely affect our profitability. Our profitability, like that of most financial institutions, depends to a large extent on our net interest income, which is the difference between our interest income on interest-earning assets, such as loans and investment securities, and our interest expense on interest-bearing liabilities, such as deposits and borrowings.
Our businesses and operations are sensitive to general business and economic conditions in the United States. If the U.S. economy weakens, our growth and profitability could be constrained. Uncertainty about the federal fiscal policymaking process and the medium and long-term fiscal outlook of the federal government is a concern for businesses, consumers and investors in the United States.
If the U.S. economy weakens, our growth and profitability could be constrained. Uncertainty about the federal fiscal policymaking process and the medium and long-term fiscal outlook of the federal government is a concern for businesses, consumers and investors in the United States.
These provisions, and the corporate and banking laws and regulations applicable to us: ● provide that special meetings of stockholders may be called at any time by the Chairman of our board of directors, by the President or by order of the board of directors; ● enable our board of directors to issue preferred stock up to the authorized amount, with such preferences, limitations and relative rights, including voting rights, as may be determined from time to time by the board; ● enable our board of directors to increase the number of persons serving as directors and to fill the vacancies created as a result of the increase by a majority vote of the directors present at the meeting; ● enable our board of directors to amend our bylaws without stockholder approval; and ● do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose). 35 These provisions may discourage potential acquisition proposals and could delay or prevent a change in control, including under circumstances in which our stockholders might otherwise receive a premium over the market price of our shares.
These provisions, and the corporate and banking laws and regulations applicable to us: ● provide that special meetings of stockholders may be called at any time by the Chairman of our board of directors, by the President or by order of the board of directors; ● enable our board of directors to issue preferred stock up to the authorized amount, with such preferences, limitations and relative rights, including voting rights, as may be determined from time to time by the board of directors;; ● enable our board of directors to increase the number of persons serving as directors and to fill the vacancies created as a result of the increase by a majority vote of the directors present at the meeting; ● enable our board of directors to amend our bylaws without stockholder approval; and ● do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose).
Because a significant portion of our loan portfolio is dependent on commercial real estate, a change in the regulatory capital requirements applicable to us as a result of these policies could limit our ability to leverage our capital, which could have a material adverse effect on our business, financial condition, results of operations and prospects. 29 We are subject to interest rate risk, which could adversely affect our profitability.
Because a significant portion of our loan portfolio is dependent on commercial real estate, a change in the regulatory capital requirements applicable to us as a result of these policies could limit our ability to leverage our capital, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
Nonetheless, we may incur a temporary disruption in our ability to conduct business or process transactions, or incur damage to our reputation, if the third-party vendor fails to adequately maintain internal controls or institute necessary changes to systems.
Nonetheless, we may incur a temporary disruption in our ability to conduct business or process transactions, or incur damage to our reputation, if the third-party vendor fails to adequately maintain internal controls or institute necessary changes to systems. Such a disruption or breach of security may have a material adverse effect on our business.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have a material adverse effect on our business, financial condition, results of operations and prospects. The replacement of LIBOR as an interest rate index could adversely affect our business and results of operations.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have a material adverse effect on our business, financial condition, results of operations and prospects.
An investment in our common stock is not an insured deposit and is subject to risk of loss. Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any deposit insurance fund or by any other public or private entity.
Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any deposit insurance fund or by any other public or private entity.
Such a disruption or breach of security may have a material adverse effect on our business. 28 A security breach related to use of third-party software or systems, or the loss or corruption of confidential customer information could adversely affect our ability to provide timely and accurate financial information in compliance with legal and regulatory requirements.
A security breach related to use of third-party software or systems, or the loss or corruption of confidential customer information could adversely affect our ability to provide timely and accurate financial information in compliance with legal and regulatory requirements.
ITEM 1A. RISK FACTORS. Our business, financial condition and results of operations could be harmed by any of the following risks or by other risks identified in this annual report, as well as by other risks we may not have anticipated or viewed as material.
Our business, financial condition and results of operations could be harmed by any of the following risks or by other risks identified in this Form 10-K, as well as by other risks we may not have anticipated or viewed as material as of the date of this Form 10-K.
Our allowance for credit losses as of December 31, 2022 was $146.3 million, or 1.25% of total gross loans.
Our allowance for credit losses as of December 31, 2023 was $153.3 million, or 1.32% of total gross loans.
Any of these factors, among others, could cause a write down that is charged against the ACL and realized and/or unrealized losses in future periods and declines in other comprehensive income, which could materially and adversely affect our business, results of operations, financial condition and prospects.
Any of these factors, among others, could cause other-than-temporary impairments and realized and/or unrealized losses in future periods and declines in other comprehensive income, which could materially and adversely affect our business, results of operations, financial condition and prospects.
We use information technology in our operations and offer online banking services to our customers. Any unauthorized access to our or our customers ’ confidential or proprietary information exposes us to reputational harm and litigation and could adversely affect our ability to attract and retain customers.
Any unauthorized access to our or our customers ’ confidential or proprietary information exposes us to reputational harm and litigation and could adversely affect our ability to attract and retain customers.
An increase in interest rates could increase competition for deposits, decrease customer demand for loans due to the higher cost of obtaining credit, result in an increased number of delinquent loans and defaults or reduce the value of securities held for investment. As domestic inflation continues to increase, the Federal Reserve is increasingly likely to continue to raise interest rates.
Any increase in interest rates could further increase competition for deposits, decrease customer demand for loans due to the higher cost of obtaining credit, result in an increased number of delinquent loans and defaults or reduce the value of securities held for investment.
Our earnings are affected by our ability to make loans, and thus we could sustain significant loan losses and consequently significant net losses if we incorrectly assess the creditworthiness of our borrowers resulting in loans to borrowers who fail to repay their loans in accordance with the loan terms, the value of the collateral securing the repayment of their loans, or we fail to detect or respond to a deterioration in our loan quality in a timely manner.
Our earnings are affected by our ability to make loans, and thus we could sustain significant loan losses and consequently significant net losses if we incorrectly assess (i) the creditworthiness of our borrowers resulting in loans to borrowers who fail to repay their loans in accordance with the loan terms or (ii) the value of the collateral securing the repayment of their loans, or we fail to detect or respond to a deterioration in our loan quality in a timely manner Management makes various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans.
Our agreements with outside third parties include indemnification obligations in the event of any such security breaches; however, there is no assurance that such third-parties will have sufficient resources to provide full indemnification of all of their customers in the event such a security breach occurs.
Our agreements with outside third parties include indemnification obligations in the event of any such security breaches; however, there is no assurance that such third-parties will have sufficient resources to provide full indemnification of all of their customers in the event such a security breach occurs. 29 Our recent results may not be indicative of our future results and may not provide guidance to assess the risk of an investment in our common stock.
As of December 31, 2022, our 10 largest borrowing relationships totaled $827.5 million in commitments (including unfunded commitments), or approximately 7.1% of our total loan portfolio.
As of December 31, 2023, our 10 largest borrowing relationships totaled $791.8 million in commitments (including unfunded commitments), or approximately 6.8% of our total loan portfolio.
However, in addition to causing economic and financial market disruptions, any future downgrade, failure to continue to raise the U.S. statutory debt limit as needed, or deterioration in the fiscal outlook of the U.S. federal government, could, among other things, materially adversely affect the market value of the U.S. and other government and governmental agency securities that we hold, the availability of those securities as collateral for borrowing, and our ability to access capital markets on favorable terms.
Although U.S. lawmakers have passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States as a result of such disputes over the debt ceiling. 31 In addition to causing economic and financial market disruptions, any future downgrade, failure to continue to raise the U.S. statutory debt limit as needed, or deterioration in the fiscal outlook of the U.S. federal government, could, among other things, materially adversely affect the market value of the U.S. and other government and governmental agency securities that we hold, the availability of those securities as collateral for borrowing, and our ability to access capital markets on favorable terms.
Limitations on our ability to receive dividends from our bank subsidiary could have a material adverse effect on our liquidity and ability to pay dividends on our common stock or interest and principal on our debt.
Limitations on our ability to receive dividends from our bank subsidiary could have a material adverse effect on our liquidity and ability to pay dividends on our common stock or interest and principal on our debt. 35 An investment in our common stock is not an insured deposit and is subject to risk of loss.
Our use of historical and objective information in determining and managing credit exposure may not be accurate in assessing our risk. Our failure to sustain our historical rate of growth or adequately manage the factors that have contributed to our growth could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our failure to sustain our historical rate of growth or adequately manage the factors that have contributed to our growth could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our success will depend in part on our ability to address our customers’ needs by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations.
The banking and financial services industries are undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. Our success will depend in part on our ability to address our customers’ needs by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations.
Alabama and Delaware law make it difficult for anyone to purchase the bank or us without approval of our board of directors. Thus, your ability to realize the potential benefits of any sale by us may be limited, even if such sale would represent a greater value for stockholders than our continued independent operation.
Thus, your ability to realize the potential benefits of any sale by us may be limited, even if such sale would represent a greater value for stockholders than our continued independent operation.
In addition, an increase in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations.
Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our business, financial condition, results of operations and prospects. 30 In addition, an increase in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations.
Any material increase in our allowance for credit losses or loan charge-offs as required by these regulatory agencies could have a material adverse effect on our business, financial condition, results of operations and prospects.
Any material increase in our allowance for credit losses or loan charge-offs as required by these regulatory agencies could have a material adverse effect on our business, financial condition, results of operations and prospects. For more information, see Note 1 – “ Summary of Significant Accounting Policies ” in the Notes to Consolidated Financial Statements included in Item 8.
Liquidity is essential to our business. Liquidity risk is the potential that we will be unable to meet our obligations as they come due because of an inability to liquidate assets or obtain adequate funding. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity.
Liquidity is essential to our business. Liquidity risk is the potential that we will be unable to meet our obligations as they come due because of an inability to liquidate assets or obtain adequate funding.
Many of the other risk factors discussed herein identify risks that result from, or are exacerbated by, financial economic downturn. These include risks related to our investments portfolio, the competitive environment and regulatory developments. As a business operating in the financial services industry, our business and operations may be adversely affected in numerous and complex ways by weak economic conditions.
These include risks related to our investments portfolio, the competitive environment and regulatory developments. 36 As a business operating in the financial services industry, our business and operations may be adversely affected in numerous and complex ways by weak economic conditions. Our businesses and operations are sensitive to general business and economic conditions in the United States.
Our failure to compete effectively in our markets could restrain our growth or cause us to lose market share, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our failure to compete effectively in our markets could restrain our growth or cause us to lose market share, which could have a material adverse effect on our business, financial condition, results of operations and prospects. 27 Unpredictable economic conditions, including inflation, recession, pandemic or changes in other economic conditions in the U.S. economy generally or in any of our market areas may have a material adverse effect on our financial performance.
Increased market volatility may materially and adversely affect the market price of our common stock, which could make it difficult to sell your shares at the volume, prices and times desired. 34 The rights of our common stockholders are subordinate to the rights of the holders of our outstanding debt and will be subordinate to the rights of the holders of any preferred securities or any debt that we may issue in the future.
Increased market volatility may materially and adversely affect the market price of our common stock, which could make it difficult to sell your shares at the volume, prices and times desired.
The current economic environment is characterized by rising interest rates and high rates of inflation, which may impact our ability to generate attractive earnings through our investment portfolio.
The current economic environment is characterized by high interest rates, which may impact our ability to generate attractive earnings through our investment portfolio. While certain factors point to improving economic conditions, including moderating inflation, uncertainty remains regarding the path of economic recovery and the mitigating impacts of government interventions.
Changes to regulations or market shifts in response to climate change may also impact the businesses of some of our customers, which may require us to adjust our lending portfolios and business strategies with respect to such customers. In addition, the investing public is increasingly focused on the financial services industry’s ability to manage environmental impact.
Changes to regulations or market shifts in response to climate change may also impact the businesses of some of our customers, which may require us to adjust our lending portfolios and business strategies with respect to such customers. We encounter technological change continually and have fewer resources than many of our competitors to invest in technological improvements.
Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our business, financial condition, results of operations and prospects.
Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.
In addition, we must attract our customer base from other existing financial institutions and from new residents.
In addition, we must attract our customer base from other existing financial institutions and from new residents. Our profitability depends upon our continued ability to successfully compete with an array of financial institutions in our service areas.
After giving effect to these transactions, we believe that we will have sufficient capital to meet our needs for our immediate growth plans. However, we will continue to need capital to support our longer-term growth plans.
We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. We believe that we presently have sufficient capital to meet our needs for our immediate growth plans. However, we will continue to need capital to support our longer-term growth plans.
We lend primarily to small to medium-sized businesses, which may expose us to greater lending risks than those faced by other banks that lend to larger, better-capitalized businesses with longer operating histories. We manage our credit exposure through careful monitoring of loan applicants and loan concentrations in particular industries, and through our loan approval and review procedures.
We provide services to our local communities; thus, our ability to diversify our economic risks is limited by our own local markets and economies. We lend primarily to small to medium-sized businesses, which may expose us to greater lending risks than those faced by other banks that lend to larger, better-capitalized businesses with longer operating histories.
Alabama and Delaware law limit the ability of others to acquire the bank, which may restrict your ability to fully realize the value of your common stock. In many cases, stockholders receive a premium for their shares when one company purchases another.
In many cases, stockholders receive a premium for their shares when one company purchases another. For example, Alabama and Delaware law make it difficult for anyone to purchase the bank or us without approval of our board of directors.
Such risks and uncertainties could cause actual results to differ materially from those contained in forward-looking statements presented elsewhere by management. The following list identifies and briefly summarizes certain risk factors. This list should not be viewed as complete or comprehensive, and the risks identified below are not the only risks facing our company.
Such risks and uncertainties could cause actual results to differ materially from those contained in forward-looking statements presented elsewhere by management.
Removed
Management makes various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans.
Added
ITEM 1A. RISK FACTORS. The following list identifies and briefly summarizes the material risk factors known to us as of the date of this Form 10-K.
Removed
In addition, the adoption of Accounting Standards Update (“ASU”) 2016-13, as amended, effective as of January 1, 2020 impacted our methodology for estimating the allowance for credit losses.
Added
We manage our credit exposure through careful monitoring of loan applicants and loan concentrations in particular industries, and through our loan approval and review procedures. Our use of historical and objective information in determining and managing credit exposure may not be accurate in assessing our risk.
Removed
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) gave financial institutions the option to delay adoption of ASU 2016-13 and we delayed our adoption of the update until December 31, 2020 , with an effective retrospective adoption date of January 1, 2020 .
Added
As can be seen from events in 2023 regarding the operations and failures of other banks in the U.S., an inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity.
Removed
Based on prevailing economic conditions and forecasts as of the January 1, 2020 adoption date, we recorded a net $2.0 million decrease in our allowance for credit losses in connection with our adoption of ASU 2016-13. See Note 1 – “ Summary of Significant Accounting Policies ” in the notes to consolidated financial statements included in Item 8.
Added
The long-term outlook for the fiscal position of the U.S. federal government is uncertain. For example, in January 2023, the outstanding national debt of the U.S. government reached its statutory limit. The U.S.
Removed
We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations.
Added
Department of the Treasury has announced that, since then, it has been using extraordinary measures to prevent the U.S. government’s default on its payment obligations, and to extend the time that the U.S. government has to raise its statutory debt limit or otherwise resolve its funding situation.
Removed
To support our recent and ongoing growth, we have completed a series of capital transactions during the past five years, including: ● the sale of $30,000,000 in 4.5% subordinated notes due November 8, 2027 to accredited investor purchasers in November 2017 and concurrent redemption of $20,000,000 in 5.5% subordinated notes due November 9, 2022; and. ● the sale of $34,750,000 in 4% subordinated notes due October 21, 2030 to accredited investor purchasers in October 2020 and concurrent redemption of $34,750,000 in 5% subordinated notes due July 15, 2025.
Added
The failure by Congress to raise the federal debt ceiling could have severe repercussions within the U.S. and to global credit and financial markets.
Removed
Unpredictable economic conditions, including inflation, recession, pandemic or changes in other economic conditions in the U.S. economy generally or in any of our market areas may have a material adverse effect on our financial performance.
Added
If Congress does not raise the debt ceiling and if the U.S. government defaults on its payment obligations or experiences delays in making payments when due, such payment default or delay by the U.S. government, as well as continued uncertainty surrounding the U.S. debt ceiling or the U.S.
Removed
We have adopted an Environmental, Social and Governance (“ESG”) Policy in an effort to refine and track our compliance efforts; however, failure to appropriately manage our environmental impact could have a material adverse effect on our reputation and harm our ability to attract and retain customers and employees. 27 We encounter technological change continually and have fewer resources than many of our competitors to invest in technological improvements.
Added
Government’s ability to pay its debts, could result in a variety of adverse effects for financial markets, market participants and U.S. and global economic conditions.
Removed
The banking and financial services industries are undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. In addition to serving customers better, the effective use of technology increases efficiency and enables financial institutions to reduce costs.
Added
In addition, U.S. debt ceiling and budget deficit concerns have increased the possibility of a downgrade in the credit rating of the U.S. government and could result in economic slowdowns or a recession in the United States.

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Item 2. Properties

Properties — owned and leased real estate

4 edited+0 added−0 removed2 unchanged
Biggest change(1) Sarasota 34236 Leased 8/1/2019 Total Offices in Florida 9 Offices Georgia: 300 Galleria Parkway SE, Suite 100 Atlanta 30339 Leased 7/1/2015 2801 Chapel Hill Road Douglasville 30135 Owned 1/28/2008 6400 Bradley Park Drive, Suite A Columbus 31904 Leased 8/12/2020 Total Offices in Georgia 3 Offices North Carolina: 14891 Ballantyne Village Way Suite 1000 Charlotte 28277 Leased 12/19/2022 1200 Ridgefield Boulevard Suite 254 Asheville 28806 Leased 9/19/2022 Total Offices in North Carolina 2 Offices South Carolina: 701 East Bay Street Suite 503 Charleston 29403 Leased 4/20/2015 100 S Main Street Suite I Summerville 29483 Leased 7/1/2016 Total Offices in South Carolina 2 Offices Tennessee: 1801 West End Avenue, Suite 200 Nashville 37203 Leased 6/4/2013 Total Offices in Tennessee 1 Office Total Offices 29 Offices (1) Property serves as a loan production office.
Biggest changeTampa 33607 Leased 1/4/2016 485 North Keller Road Orlando 32751 Leased 7/1/2021 247 Tamiami Trail South Suite 100 Venice 34285 Leased 1/3/2021 1718 Main Street, Suite 100 (1) Sarasota 34236 Leased 7/1/2022 3375 Capital Circle NE, Bldg B 1 (1) Tallahassee 32308 Leased 3/29/2023 Total Offices in Florida 10 Offices Georgia: 300 Galleria Parkway SE, Suite 100 Atlanta 30339 Leased 7/1/2015 2801 Chapel Hill Road Douglasville 30135 Owned 1/28/2008 700 Brookstone Centre Parkway, Suite 400 Columbus 31904 Leased 2/1/2023 Total Offices in Georgia 3 Offices North Carolina: 14891 Ballantyne Village Way Suite 1000 Charlotte 28277 Leased 12/19/2022 1200 Ridgefield Boulevard Suite 254 Asheville 28806 Leased 9/19/2022 9624 Bailey Road, Suite I Cornelius 28031 Leased 7/1/2023 Total Offices in North Carolina 3 Offices South Carolina: 701 East Bay Street Suite 503 Charleston 29403 Leased 4/20/2015 100 S Main Street Suite I Summerville 29483 Leased 7/1/2016 Total Offices in South Carolina 2 Offices Tennessee: 1600 West End Avenue, Suite 200 Nashville 37203 Leased 5/1/2021 Total Offices in Tennessee 1 Office Virginia: 4505 Columbus Street, Suite 100 Virginia Beach 23462 Leased 9/1/2022 Total Offices in Virginia 1 Office Total Offices 32 Offices (1) Property serves as a loan production office. 39
Suite 101 Fairhope 36532 Leased 9/29/2017 Total Offices in Alabama 12 Offices 37 Florida: 219 East Garden Street Suite 100 Pensacola 32502 Leased 4/1/2011 4980 North 12th Avenue Pensacola 32504 Owned 8/27/2012 316 Racetrack RD NE Ft.
Suite 101 Fairhope 36532 Leased 9/29/2017 Total Offices in Alabama 12 Offices Florida: 219 East Garden Street Suite 100 Pensacola 32502 Leased 4/1/2011 4980 North 12th Avenue Pensacola 32504 Owned 8/27/2012 316 Racetrack RD NE Ft.
ITEM 2. PROPERTIES. As of December 31, 2022, we operated through 26 banking offices and 3 loan production offices. Our Woodcrest Place office also includes our corporate headquarters. Due to our focus on service-oriented banking with limited branch locations, each of these locations serves as a hub in our banking markets.
ITEM 2. PROPERTIES. As of December 31, 2023, we operated through 30 banking offices and 2 loan production offices. Our Woodcrest Place office also includes our corporate headquarters. Due to our focus on service-oriented banking with limited branch locations, each of these locations serves as a hub in our banking markets.
Walton Bch. 32547 Owned 8/3/2020 1022 W 23rd Street, Suite 600 (1) Panama City 32405 Leased 10/10/2022 1701 Hermitage Boulevard Suite 104 Tallahassee 32308 Leased 9/27/2022 4221 West Boy Scout Blvd. Tampa 33607 Leased 1/4/2016 485 North Keller Road (1) Orlando 32751 Leased 7/1/2021 247 Tamiami Trail South Suite 100 Venice 34285 Leased 1/3/2021 240 South Pineapple Ave.
Walton Bch. 32547 Owned 8/3/2020 1022 W 23rd Street, Suite 600 Panama City 32405 Leased 10/10/2022 1701 Hermitage Boulevard Suite 104 Tallahassee 32308 Leased 9/27/2022 4221 West Boy Scout Blvd.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+1 added−4 removed2 unchanged
Biggest changePerformance Graph The following performance graph does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates the performance graph by reference therein. 39 The Company is replacing the S&P 600 Financials index with the KBW Nasdaq Regional Banking index [KRX].
Biggest changeThe following performance graph does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act or the Exchange Act, except to the extent the Company specifically incorporates the performance graph by reference therein. 40 ITEM 6. [Reserved].
Purchases of Equity Securities by the Registrant and Affiliated Purchasers We made no repurchases of our equity securities, and no “affiliated purchasers” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934) purchased any shares of our equity securities during the fourth quarter of the fiscal year ended December 31, 2022.
Purchases of Equity Securities by the Registrant and Affiliated Purchasers We made no repurchases of our equity securities, and no “affiliated purchasers” (as defined in Rule 10b-18(a)(3) under the Exchange Act) purchased any shares of our equity securities during the fourth quarter of the fiscal year ended December 31, 2023.
Recent Sales of Unregistered Securities We had no sales of unregistered securities in 2022 other than those previously reported in our reports filed with the SEC.
Recent Sales of Unregistered Securities We had no sales of unregistered securities in 2023 other than those previously reported in our reports filed with the SEC.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our common stock is listed on the New York Stock Exchange under the symbol “SFBS.” As of February 22, 2023, there were 512 holders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our common stock is listed on the New York Stock Exchange under the symbol “SFBS.” As of February 27, 2024, there were 466 holders of record of our common stock.
As of the close of business on February 22, 2023, the price of our common stock was $73.10 per share. 38 Dividends On December 19, 2022, our board of directors increased our quarterly cash dividend from $0.23 per share to $0.28 per share.
As of the close of business on February 27, 2024, the price of our common stock was $62.44 per share. Dividends On December 19, 2023, our board of directors increased our quarterly cash dividend from $0.28 per share to $0.30 per share.
Removed
Equity Compensation Plan Information The following table sets forth certain information as of December 31, 2022 relating to stock options, restricted stock and performance shares granted under our 2009 Amended and Restated Stock Incentive Plan and other options or restricted shares issued outside of such plans, if any.
Added
Performance Graph The following graph shows a comparison of the five-year cumulative total stockholder return for the Company, the KBW Nasdaq Regional Banking Index (KRX), and the Standard and Poor's 600 (S&P 600).
Removed
Plan Category Number of Securities To Be Issued Upon Exercise of Outstanding Awards (1) Weighted-average Exercise Price of Outstanding Awards (2) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans Equity Compensation Plans Approved by Security Holders 445,432 $ 19.43 3,089,132 Equity Compensation Plans Not Approved by Security Holders - - - Total 445,432 $ 19.43 3,089,132 (1) Includes 280,000 shares related to stock options, 141,580 shares related to non-vested restricted stock and 23,852 shares related to performance shares (assuming attainment of the maximum payout rate as set forth by the performance criteria).
Removed
(2) Excludes restricted shares and performance shares which are exercised for no consideration.
Removed
The Company believes the specific focus of the KBW Nasdaq Regional Banking index on regional banks allows for a stronger direct peer comparison with the Company’s stockholder returns. ITEM 6. [Reserved].

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeITEM 6. [RESERVED] 40 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 40 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 59 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 62 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 103 ITEM 9A. CONTROLS AND PROCEDURES 103
Biggest changeITEM 6. [RESERVED] 41 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 41 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 60 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 62 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 104 ITEM 9A. CONTROLS AND PROCEDURES 104

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeNonperforming Assets The table below summarizes our nonperforming assets at December 31, 2022, 2021 and 2020: 2022 2021 2020 Number Number Number Balance of Loans Balance of Loans Balance of Loans (Dollars in Thousands) Nonaccrual loans: Commercial, financial and agricultural $ 7,108 18 $ 4,343 17 $ 11,709 22 Real estate - construction - - - - 234 1 Real estate - mortgage: Owner-occupied commercial 3,312 3 1,021 2 1,259 4 1-4 family mortgage 1,524 16 1,398 12 771 7 Other mortgage 506 2 - - - - Total real estate - mortgage 5,342 21 2,419 14 2,030 11 Consumer - - - - - - Total nonaccrual loans $ 12,450 39 $ 6,762 31 $ 13,973 34 90+ days past due and accruing: Commercial, financial and agricultural $ 195 26 $ 39 4 $ 11 2 Real estate - construction - - - - - - Real estate - mortgage: Owner-occupied commercial - - - - - - 1-4 family mortgage 594 5 611 3 104 1 Other mortgage 4,512 1 4,656 1 4,805 1 Total real estate - mortgage 5,106 6 5,267 4 4,909 2 Consumer 90 44 29 22 61 25 Total 90+ days past due and accruing $ 5,391 76 $ 5,335 30 $ 4,981 29 Total nonperforming loans $ 17,841 115 $ 12,097 61 $ 18,954 63 Plus: Other real estate owned and repossessions 248 2 1,208 5 6,497 11 Total nonperforming assets $ 18,089 117 $ 13,305 66 $ 25,451 74 Restructured accruing loans: Commercial, financial and agricultural $ 2,480 5 $ 431 2 $ 818 3 Real estate - construction - - - - - - Real estate - mortgage: Owner-occupied commercial - - - - - - 1-4 family mortgage - - - - - - Other mortgage - - - - - - Total real estate - mortgage - - - - - - Consumer - - - - - - Total restructured accruing loans $ 2,480 5 $ 431 2 $ 818 3 Total nonperforming assets and restructured accruing loans $ 20,569 122 $ 13,736 68 $ 26,269 77 Ratios: Nonperforming loans to total loans 0.15 % 0.13 % 0.22 % Nonperforming assets to total loans plus other Nonperforming assets to total loans plus other real estate owned and repossessions 0.15 % 0.14 % 0.30 % Nonperforming assets and restructured accruing loans to total loans plus other real estate owned and repossessions 0.18 % 0.14 % 0.31 % 53 The accrual of interest on loans is discontinued when there is a significant deterioration in the financial condition of the borrower and full repayment of principal and interest is not expected or the principal or interest is more than 90 days past due, unless the loan is both well-collateralized and in the process of collection.
Biggest changeWhen a workout is not achievable, we move to collection/foreclosure proceedings to obtain control of the underlying collateral as rapidly as possible to minimize the deterioration of collateral and/or the loss of its value. ● We require updated financial information, global inventory aging and interest carry analysis for existing customers to help identify potential future loan payment problems. ● We generally limit loans for new construction to established builders and developers that have an established record of turning their inventories, and we restrict our funding of undeveloped lots and land. 53 Nonperforming Assets The table below summarizes our nonperforming assets at December 31, 2023, 2022 and 2021: 2023 2022 2021 Number Number Number Balance of Loans Balance of Loans Balance of Loans (Dollars in Thousands) Nonaccrual loans: Commercial, financial and agricultural $ 7,217 35 $ 7,108 18 $ 4,343 17 Real estate - construction 111 1 - - - - Real estate - mortgage: Owner-occupied commercial 7,089 14 3,312 3 1,021 2 1-4 family mortgage 4,426 41 1,524 16 1,398 12 Other mortgage 506 2 506 2 - - Total real estate - mortgage 12,021 57 5,342 21 2,419 14 Consumer - - - - - - Total nonaccrual loans $ 19,349 93 $ 12,450 39 $ 6,762 31 90+ days past due and accruing: Commercial, financial and agricultural $ 170 8 $ 195 26 $ 39 4 Real estate - construction - - - - - - Real estate - mortgage: Owner-occupied commercial - - - - - - 1-4 family mortgage 1,909 9 594 5 611 3 Other mortgage - - 4,512 1 4,656 1 Total real estate - mortgage 1,909 9 5,106 6 5,267 4 Consumer 105 16 90 44 29 22 Total 90+ days past due and accruing $ 2,184 33 $ 5,391 76 $ 5,335 30 Total nonperforming loans $ 21,533 126 $ 17,841 115 $ 12,097 61 Plus: Other real estate owned and repossessions 995 7 248 2 1,208 5 Total nonperforming assets $ 22,528 133 $ 18,089 117 $ 13,305 66 Restructured accruing loans: Commercial, financial and agricultural $ - - $ 2,480 5 $ 431 2 Real estate - construction - - - - - - Real estate - mortgage: Owner-occupied commercial - - - - - - 1-4 family mortgage - - - - - - Other mortgage - - - - - - Total real estate - mortgage - - - - - - Consumer - - - - - - Total restructured accruing loans $ - - $ 2,480 5 $ 431 2 Total nonperforming assets and restructured accruing loans $ 22,528 133 $ 20,569 122 $ 13,736 68 Ratios: Nonperforming loans to total loans 0.18 % 0.15 % 0.13 % Nonperforming assets to total loans plus other Nonperforming assets to total loans plus other real estate owned and repossessions 0.19 % 0.15 % 0.14 % Nonperforming assets and restructured accruing loans to total loans plus other real estate owned and repossessions 0.19 % 0.18 % 0.14 % The accrual of interest on loans is discontinued when there is a significant deterioration in the financial condition of the borrower and full repayment of principal and interest is not expected or the principal or interest is more than 90 days past due, unless the loan is both well-collateralized and in the process of collection.
Losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable period losses are reverted to long term historical averages. The reasonable and supportable period and reversion period are re-evaluated each quarter by the Company and are dependent on the current economic environment among other factors.
Losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable period losses are reverted to long term historical averages. The reasonable and supportable period and reversion period are re-evaluated each quarter by the Company and are dependent on the current economic environment among other factors.
Our regulators may disagree with our assumptions and could require us to materially increase our allowance for credit losses. 58 Loans with similar risk characteristics are evaluated in pools and, depending on the nature of each identified pool, the Company utilizes a discounted cash flow (“DCF”), a probability of default / loss given default (“PD/LGD”) or a remaining life method.
Our regulators may disagree with our assumptions and could require us to materially increase our allowance for credit losses. Loans with similar risk characteristics are evaluated in pools and, depending on the nature of each identified pool, the Company utilizes a discounted cash flow (“DCF”), probability of default / loss given default (“PD/LGD”) or remaining life method.
At this time, we are unable to project the materiality of such an impact on future deferrals to COVID-19 affected borrowers, but we recognize the breadth of the economic impact may affect our borrowers’ ability to repay in future periods. Deposits We rely on increasing our deposit base to fund loan and other asset growth.
At this time, we are unable to project the materiality of such an impact on future deferrals to COVID-19 affected borrowers, but we recognize the breadth of the economic impact may affect our borrowers’ ability to repay in future periods. 54 Deposits We rely on increasing our deposit base to fund loan and other asset growth.
Overview The Company We are a bank holding company within the meaning of the BHC Act headquartered in Birmingham, Alabama. Through our wholly-owned subsidiary bank, we operate full service banking offices located in Alabama, Florida, Georgia, North Carolina, South Carolina, and Tennessee. We also operate loan production offices in Florida.
Overview The Company We are a bank holding company within the meaning of the BHC Act headquartered in Birmingham, Alabama. Through our wholly-owned subsidiary bank, we operate full service banking offices located in Alabama, Florida, Georgia, North Carolina, South Carolina, Tennessee, and Virginia. We also operate loan production offices in Florida.
Changes in underlying factors, assumptions or estimates in any of these areas could have a material impact on our future financial condition and results of operations. Allowance for Credit Losses The Company assesses the adequacy of its allowance for credit losses at the end of each calendar quarter.
Changes in underlying factors, assumptions or estimates in any of these areas could have a material impact on our future financial condition and results of operations. 58 Allowance for Credit Losses The Company assesses the adequacy of its allowance for credit losses at the end of each calendar quarter.
During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to adversely affect net interest income. Our asset liability and investment committee is charged with monitoring our liquidity and funds position.
During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to adversely affect net interest income. 56 Our asset liability and investment committee is charged with monitoring our liquidity and funds position.
Management ’ s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of the Company ’ s financial statements with a narrative from the perspective of management on the Company ’ s financial condition, results of operations, liquidity and certain other factors that may affect future results.
Management ’ s Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of the Company ’ s financial statements with a narrative from the perspective of management on the Company ’ s financial condition, results of operations, liquidity and certain other factors that may affect future results.
The net interest margin is an indication of the profitability of a company’s balance sheet and is defined as net interest revenue as a percentage of total average interest-earning assets, which includes the positive effect of funding a portion of interest-earning assets with noninterest-bearing deposits and stockholders’ equity. 42 The net interest margin is impacted by the average volumes of interest-sensitive assets and interest-sensitive liabilities and by the difference between the yield on interest-sensitive assets and the cost of interest-sensitive liabilities (spread).
The net interest margin is an indication of the profitability of a company’s balance sheet and is defined as net interest revenue as a percentage of total average interest-earning assets, which includes the positive effect of funding a portion of interest-earning assets with noninterest-bearing deposits and stockholders’ equity. 43 The net interest margin is impacted by the average volumes of interest-sensitive assets and interest-sensitive liabilities and by the difference between the yield on interest-sensitive assets and the cost of interest-sensitive liabilities (spread).
This capital injection, along with the level of capital each borrower had immediately prior to the beginning of the COVID-19 pandemic, are critical factors in determining the continued business viability of our borrowers. As of December 31, 2022, we have received payment from the SBA on almost all of our loans totaling $1.5 billion.
This capital injection, along with the level of capital each borrower had immediately prior to the beginning of the COVID-19 pandemic, are critical factors in determining the continued business viability of our borrowers. As of December 31, 2023, we have received payment from the SBA on almost all of our loans totaling $1.5 billion.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in “ Management's Discussion and Analysis of Financial Condition and Results of Operations ” in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in “ Management's Discussion and Analysis of Financial Condition and Results of Operations ” in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
At the current time, our long-term liquidity needs primarily relate to funds required to support loan originations and commitments and deposit withdrawals. Capital Adequacy As of December 31, 2022, our most recent notification from the FDIC categorized us as well-capitalized under the regulatory framework for prompt corrective action.
At the current time, our long-term liquidity needs primarily relate to funds required to support loan originations and commitments and deposit withdrawals. Capital Adequacy As of December 31, 2023, our most recent notification from the FDIC categorized us as well-capitalized under the regulatory framework for prompt corrective action.
In addition, the Alabama Banking Department has required that the Bank maintain a leverage ratio of 8.00%. The following table sets forth (i) the capital ratios of the Bank required by the FDIC to maintain “well-capitalized” status and (ii) our actual ratios of capital to total regulatory or risk-weighted assets, as of December 31, 2022.
In addition, the Alabama Banking Department has required that the Bank maintain a leverage ratio of 8.00%. The following table sets forth (i) the capital ratios of the Bank required by the FDIC to maintain “well-capitalized” status and (ii) our actual ratios of capital to total regulatory or risk-weighted assets, as of December 31, 2023.
The following table shows, for the years ended December 31, 2022, 2021 and 2020, the average balances of each principal category of our assets, liabilities and stockholders’ equity, and an analysis of net interest revenue, and the change in interest income and interest expense segregated into amounts attributable to changes in volume and changes in rates.
The following table shows, for the years ended December 31, 2023, 2022 and 2021, the average balances of each principal category of our assets, liabilities and stockholders’ equity, and an analysis of net interest revenue, and the change in interest income and interest expense segregated into amounts attributable to changes in volume and changes in rates.
The Company considers factors that are relevant within the qualitative framework which include the following: lending policy, changes in nature and volume of loans, staff experience, changes in volume and trends of problem loans, concentration risk, trends in underlying collateral values, external factors, quality of loan review system and other economic conditions.
The Company considers factors that are relevant within the qualitative framework, which include the following: lending policy, changes in nature and volume of loans, staff experience, changes in volume and trends of problem loans, concentration risk, trends in underlying collateral values, external factors, quality of loan review system; and other economic conditions and new markets.
To remain categorized as well-capitalized, we must maintain minimum common equity tier 1 risk-based, Tier 1 risk-based, total risk-based, and Tier 1 leverage ratios as disclosed in the table below. Our management believes that we are well-capitalized under the prompt corrective action provisions as of December 31, 2022.
To remain categorized as well-capitalized, we must maintain minimum common equity tier 1 risk-based, Tier 1 risk-based, total risk-based, and Tier 1 leverage ratios as disclosed in the table below. Our management believes that we are well-capitalized under the prompt corrective action provisions as of December 31, 2023.
Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed with the SEC on February 25, 2022 ( 2021 FORM 10-K ) for a discussion and analysis of the more significant factors that affected periods prior to 2021.
Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed with the SEC on February 25, 2023 ( 2022 FORM 10-K ) for a discussion and analysis of the more significant factors that affected periods prior to 2022.
Management seeks to optimize this revenue while balancing interest rate, credit, and liquidity risks. The major factors which affect net interest income are changes in volumes, the yield on interest-earning assets and the cost of interest-bearing liabilities.
Management seeks to optimize this revenue while balancing interest rate, credit, and liquidity risks. The major factors that affect net interest income are changes in volumes, the yield on interest-earning assets and the cost of interest-bearing liabilities.
Maturity of Debt Securities - Weighted Average Yield One Year or Less After One Year through Five Years After Five Years through Ten Years More Than Ten Years Total At December 31, 2022: (In Thousands) Securities Available for Sale: U.S.
Maturity of Debt Securities - Weighted Average Yield One Year or Less After One Year through Five Years After Five Years through Ten Years More Than Ten Years Total At December 31, 2023: (In Thousands) Securities Available for Sale: U.S.
Our primary permanent differences are related to tax exempt income on debt securities, state income tax benefit on real estate investment trust dividends, various qualifying tax credits and change in cash surrender value of bank-owned life insurance. 46 We have invested $287.8 million in bank-owned life insurance for certain officers of the Bank.
Our primary permanent differences are related to tax exempt income on debt securities, state income tax benefit on real estate investment trust dividends, various qualifying tax credits and change in cash surrender value of bank-owned life insurance. We have invested $292.8 million in bank-owned life insurance for certain officers of the Bank.
ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section of the Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section of the Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
The following tables present a summary of our statements of income, including the percent change in each category, for the years ended December 31, 2022 compared to 2021, and for the years ended December 31, 2021 compared to 2020, respectively.
The following tables present a summary of our statements of income, including the percent change in each category, for the years ended December 31, 2023 compared to 2022, and for the years ended December 31, 2022 compared to 2021, respectively.
Results of Operations The following discussion and analysis presents the more significant factors that affected our financial condition as of December 31, 2022 and 2021 and results of operations for each of the years then ended.
Results of Operations The following discussion and analysis presents the more significant factors that affected our financial condition as of December 31, 2023 and 2022 and results of operations for each of the years then ended.
The ACL on unfunded loan commitments is classified as a liability account on the balance sheet within other liabilities, while the corresponding provision for these credit losses is recorded as a component of other expense. The allowance for credit losses on unfunded commitments was $575,000 at December 31, 2022.
The ACL on unfunded loan commitments is classified as a liability account on the balance sheet within other liabilities, while the corresponding provision for these credit losses is recorded as a component of other expense. The allowance for credit losses on unfunded commitments was $575,000 as of December 31, 2023 and December 31, 2022.
In certain instances, parenthetical references are made to relevant sections of the Notes to Consolidated Financial Statements to direct the reader to a further detailed discussion. This section should be read in conjunction with the Consolidated Financial Statements included in this Annual Report on Form 10-K.
In certain instances, parenthetical references are made to relevant sections of the Notes to Consolidated Financial Statements to direct the reader to a further detailed discussion. This section should be read in conjunction with the Consolidated Financial Statements included in this Form 10-K.
The fair values of our agreements with investors and rate lock commitments to customers as of December 31, 2022 and 2021 were not material.
The fair values of our agreements with investors and rate lock commitments to customers as of December 31, 2023 and 2022 were not material.
For the Year Ended 2022 2021 2020 Sources of Funds: Deposits: Non-interest-bearing 32.1 % 27.3 % 23.5 % Interest-bearing 48.7 55.5 61.1 Federal funds purchased 10.4 8.6 5.9 Long term debt and other borrowings 0.4 0.5 0.6 Other liabilities 0.3 0.3 0.5 Equity capital 8.1 7.8 8.4 Total sources 100.0 % 100.0 % 100.0 % Uses of Funds: Loans 67.0 % 64.4 % 76.7 % Securities 11.2 7.3 7.9 Interest-bearing balances with banks 18.1 24.7 11.0 Federal funds sold 0.2 0.1 0.6 Other assets 3.5 3.4 3.8 Total uses 100.0 % 100.0 % 100.0 % Liquidity Liquidity is defined as our ability to generate sufficient cash to fund current loan demand, deposit withdrawals, or other cash demands and disbursement needs, and otherwise to operate on an ongoing basis.
For the Year Ended 2023 2022 2021 Sources of Funds: Deposits: Non-interest-bearing 18.9 % 32.1 % 27.3 % Interest-bearing 62.2 48.7 55.5 Federal funds purchased 8.5 10.4 8.6 Long term debt and other borrowings 0.6 0.4 0.5 Other liabilities 0.4 0.3 0.3 Equity capital 9.4 8.1 7.8 Total sources 100.0 % 100.0 % 100.0 % Uses of Funds: Loans 77.1 % 67.0 % 64.4 % Securities 12.5 11.2 7.3 Interest-bearing balances with banks 7.1 18.1 24.7 Federal funds sold 0.4 0.2 0.1 Other assets 3.0 3.5 3.4 Total uses 100.0 % 100.0 % 100.0 % Liquidity Liquidity is defined as our ability to generate sufficient cash to fund current loan demand, deposit withdrawals, or other cash demands and disbursement needs, and otherwise to operate on an ongoing basis.
We maintain an ACL on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the ACL, modified to take into account the probability of a drawdown on the commitment.
We maintain an ACL on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a similar methodology to the one used to determine the ACL, modified to account for the probability of a drawdown on the commitment.
In such a scenario, interest income in future periods could be negatively impacted. As of December 31, 2022, we carry $2.4 million of accrued interest income on deferrals made to COVID-19 affected borrowers compared to $4.0 million at December 31, 2021.
In such a scenario, interest income in future periods could be negatively impacted. As of December 31, 2023, we carry $2.1 million of accrued interest income on deferrals made to COVID-19 affected borrowers compared to $2.4 million at December 31, 2022.
Derivatives The bank periodically enters into derivative contracts to manage exposures to movements in interest rates. The bank purchased an interest rate cap in May of 2020 to limit exposures to increases in interest rates. The interest rate cap is not designated as a hedging instrument but rather is a stand-alone derivative.
Derivatives The Company periodically enters into derivative contracts to manage exposures to movements in interest rates. The Company purchased an interest rate cap in May of 2020 to limit exposures to increases in interest rates. The interest rate cap was not designated as a hedging instrument but rather as a stand-alone derivative.
We had total loans of approximately $11.7 billion at December 31, 2022. A large majority of our loan customers are located within our market MSAs, as is the collateral for their loans.
We had total loans of approximately $11.66 billion at December 31, 2023. A large majority of our loan customers are located within our market MSAs, as is the collateral for their loans.
Additionally, at such date we had available to us approximately $698.0 million in unused federal funds lines of credit with regional banks, subject to certain restrictions and collateral requirements, to meet short term funding needs. 57 As a separate entity from the Bank, we also have separate liquidity obligations.
Additionally, the Bank had available to us approximately $888.0 million in unused federal funds lines of credit with regional banks, subject to certain restrictions and collateral requirements, to meet short term funding needs. As a separate entity from the bank, we also have separate liquidity obligations.
(2) Weighted Average Yield is calculated by taking the sum of each category of securities multiplied by the respective tax-equivalent yield for a given maturity, and dividing by the sum of the securities for the same maturity. As of December 31, 2022, we had $1.5 million in federal funds sold, compared with $58.4 million at December 31, 2021.
(2) Weighted Average Yield is calculated by taking the sum of each category of securities multiplied by the respective tax-equivalent yield for a given maturity, and dividing by the sum of the securities for the same maturity. 48 As of December 31, 2023, we had $100.6 million in federal funds sold, compared with $1.5 million at December 31, 2022.
However, our ultimate source of liquidity consists of dividends from the Bank, which are limited by applicable law and regulations. In 2022 and 2021, the Bank paid dividends of $57.5 million and $46.0 million to us, respectively. For a detailed discussion on the regulatory limitation on Bank dividends, see “Supervision and Regulation - Payment of Dividends” in Item 1.
However, our ultimate source of liquidity consists of dividends from the Bank, which are limited by applicable law and regulations. In 2023 and 2022, the Bank paid dividends of $62.5 million and $57.5 million, respectively. For a detailed discussion on the regulatory limitation on Bank dividends, see “Supervision and Regulation - Payment of Dividends” in Item 1.
We also recognized excess tax benefits as an income tax credit to our income tax expense from the exercise and vesting of stock options and restricted stock during 2022 of $1.3 million, compared to $2.8 million during 2021.
We also recognized excess tax benefits as an income tax credit to our income tax expense from the exercise and vesting of stock options and restricted stock during 2023 of $1.5 million, compared to $1.3 million during 2022.
Our management’s ability to respond to changes in interest rates by effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and the momentum of our primary source of earnings. Net interest income increased 22.5% for the year ended December 31, 2022 from the year ended December 31, 2021.
Our management’s ability to respond to changes in interest rates by effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and the momentum of our primary source of earnings. Net interest income decreased 12.7% for the year ended December 31, 2023 from the year ended December 31, 2022.
The committee regularly reviews the rate sensitivity position on a three-month, six-month and one-year time horizon; loans-to-deposits ratios; and average maturities for certain categories of liabilities. The asset liability committee uses a model to analyze the maturities of rate-sensitive assets and liabilities.
The committee regularly reviews the rate sensitivity position on a three-month, six-month and one-year time horizon; loans-to-deposits ratios; and average maturities for certain categories of liabilities. The asset liability committee uses a model to analyze the maturities of rate-sensitive assets and liabilities. Gap is also expressed as the ratio of rate-sensitive assets divided by rate-sensitive liabilities.
Our average interest-earning assets produced a taxable equivalent yield of 3.94% for the year ended December 31, 2022, compared to 3.18% for the year ended December 31, 2021. The average rate paid on interest-bearing liabilities was 0.98% for the year ended December 31, 2022, compared to 0.36% for the year ended December 31, 2021.
Our average interest-earning assets produced a taxable equivalent yield of 5.56% for the year ended December 31, 2023, compared to 3.94% for the year ended December 31, 2022. The average rate paid on interest-bearing liabilities was 3.73% for the year ended December 31, 2023, compared to 0.98% for the year ended December 31, 2022.
The fair value of the interest rate cap is carried on the balance sheet in other assets and the change in fair value is recognized in noninterest income each quarter. At December 31, 2022, the interest rate cap had a fair value of $4.2 million and remaining term of 0.3 years.
The fair value of the interest rate cap was carried on the Consolidated Balance Sheets in other assets and the change in fair value was recognized in noninterest income each quarter. The interest rate cap had a fair value of $4.2 million and remaining term of 0.3 years at December 31, 2022, and expired on May 4, 2023.
Well- Capitalized Actual at December 31, 2022 CET 1 Capital Ratio 6.50 % 9.98 % Tier 1 Capital Ratio 8.00 % 9.98 % Total Capital Ratio 10.00 % 11.04 % Leverage ratio 5.00 % 9.71 % For a description of capital ratios see Note 14 - “ Regulatory Matters ” to the Consolidated Financial Statements.
Well-Capitalized Actual at December 31, 2023 CET 1 Capital Ratio 6.50 % 11.37 % Tier 1 Capital Ratio 8.00 % 11.38 % Total Capital Ratio 10.00 % 12.52 % Leverage ratio 5.00 % 9.50 % For a description of capital ratios see Note 14 - “ Regulatory Matters ” to the Consolidated Financial Statements.
The interest rate cap has an original term of 3 years, a notional amount of $300 million and is tied to the one-month LIBOR rate with a strike rate of 0.50%.
The interest rate cap had an original term of three years, a notional amount of $300 million and was tied to the one-month LIBOR rate with a strike rate of 0.50%.
The rate component was favorable as average rates paid on interest-bearing liabilities increased 62 basis points while yields on average earning assets increased 76 basis points. 44 The two primary factors that make up the spread are the interest rates received on loans and the interest rates paid on deposits.
The rate component was unfavorable as average rates paid on interest-bearing liabilities increased 275 basis points while yields on average earning assets increased 162 basis points. 45 The two primary factors that make up the spread are the interest rates received on loans and the interest rates paid on deposits.
Basic and diluted net income per common share were $4.63 and $4.61, respectively, for the year ended December 31, 2022, compared to $3.83 and $3.82, respectively, for the year ended December 31, 2021.
Basic and diluted net income per common share were $3.80 and $3.79, respectively, for the year ended December 31, 2023, compared to $4.63 and $4.61, respectively, for the year ended December 31, 2022.
The net interest spread eliminates the effect of noninterest-earning assets as well as noninterest-bearing deposits and other noninterest-bearing funding sources and gives a direct perspective on the effect of market interest rate movements.
The net interest spread measures the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities. The net interest spread eliminates the effect of noninterest-earning assets as well as noninterest-bearing deposits and other noninterest-bearing funding sources and gives a direct perspective on the effect of market interest rate movements.
The trusts are majority-owned subsidiaries of a trust holding company, which in turn is an indirect, wholly-owned subsidiary of the bank. The trusts earn interest income on the loans they hold and incur operating expenses related to their activities. They pay their net earnings, in the form of dividends, to the bank, which receives a deduction for state income taxes.
The trusts are majority-owned subsidiaries of a trust holding company, which in turn is an indirect, wholly-owned subsidiary of the Bank. The trusts earn interest income on the loans they hold and incur operating expenses related to their activities.
See the section captioned “Allowance for Credit Losses” located elsewhere in this item for additional discussion related to provision for credit losses. The provision expense for credit losses increased 19.3% for the year ended December 31, 2022 when compared to the year-ended December 31, 2021.
See the section captioned “Allowance for Credit Losses” located elsewhere in this item for additional discussion related to provision for credit losses. The provision expense for credit losses decreased 50.2% for the year ended December 31, 2023 when compared to the year-ended December 31, 2022.
Nonaccrual loans rose to $12.5 million, or 0.11% of total loans, at December 31, 2022 from $6.8 million, or 0.07% of total loans, at December 31, 2021, and were $14.0 million, or 0.17% of total loans, at December 31, 2020.
Nonaccrual loans increased to $19.3 million, or 0.17% of total loans, at December 31, 2023 from $12.5 million, or 0.11% of total loans, at December 31, 2022, and were $6.8 million, or 0.07% of total loans, at December 31, 2021.
Treasury Securities - % 2.03 % 1.48 % - % 1.89 % Mortgage-backed securities - - 2.77 2.37 2.38 State and municipal securities 3.21 1.93 1.97 - 1.99 Total weighted average yield (2) 3.21 % 2.02 % 1.64 % 2.37 % 2.14 % (1) Yields on tax-exempt securities are computed on a fully tax-equivalent basis using a tax rate of 21% and are net of the effects of certain disallowed interest deductions.
Treasury Securities 2.39 % 1.31 % 1.64 % - % 1.89 % Mortgage-backed securities - - 2.65 2.40 2.41 State and municipal securities 3.21 1.93 1.97 - 1.99 Total weighted average yield (2) 2.39 % 1.33 % 1.87 % 2.40 % 2.14 % (1) Yields on tax-exempt securities are computed on a fully tax-equivalent basis using a tax rate of 21% and are net of the effects of certain disallowed interest deductions.
As demonstrated in the discussion of net interest margin below, average interest rate yields on average earning assets had a lesser impact on our interest income. Average earning assets increased 8.3% in 2022 from 2021, which was primarily driven by an increase in loans.
As demonstrated in the discussion of net interest margin below, average interest rate yields on average earning assets had a lesser impact on our interest income. Average earning assets increased 3.1% in 2023 from 2022, which was primarily driven by an increase of $1.04 billion in average loans. A majority of our regional markets grew loans during 2023.
For the Years Ended December 31, 2022 2021 2020 Return on average assets 1.71 % 1.53 % 1.59 % Return on average stockholders' equity 20.73 % 19.27 % 18.55 % Dividend payout ratio 19.17 % 20.98 % 22.39 % Net interest margin (1) 3.32 % 2.94 % 3.31 % Efficiency ratio (2) 31.30 % 31.84 % 30.29 % Average stockholders' equity to average total assets 7.33 % 7.95 % 8.59 % (1) Net interest margin in the net yield on interest earning assets and is the difference between the interest yield earned on interest-earning assets and interest rate paid on interest-bearing liabilities, divided by average earning assets.
For the Years Ended December 31, 2023 2022 2021 Return on average assets 1.37 % 1.71 % 1.53 % Return on average stockholders' equity 15.13 % 20.73 % 19.27 % Dividend payout ratio 30.06 % 19.17 % 20.98 % Net interest margin (1) 2.81 % 3.32 % 2.94 % Efficiency ratio (2) 40.67 % 31.30 % 31.84 % Average stockholders' equity to average total assets 9.07 % 7.33 % 7.95 % (1) Net interest margin in the net yield on interest earning assets and is the difference between the interest yield earned on interest-earning assets and interest rate paid on interest-bearing liabilities, divided by average earning assets..
Growth in loans and debt securities, offset by decreases in interest-bearing balances with banks, and federal funds sold were the primary reasons for the decrease in ending and increase in average total assets. Year-end 2022 loans were $11.69 billion, up $2.16 billion, or 12.6%, over year-end 2021 total loans of $9.53 billion.
Growth in loans and debt securities, offset by decreases in interest-bearing balances with banks, and federal funds sold were the primary reasons for the increase in ending and average total assets. Year-end 2023 loans, were $11.66 billion, a decrease of $29.1 million, or 0.2% compared to $1.53 billion, over year-end 2022 total loans of $11.69 billion.
The increase in stockholders’ equity resulted primarily from net income of $251.4 million during the year ended December 31, 2022, less dividends paid or declared on our common stock of $52.7 million during the year ended December 31, 2022.
The increase in stockholders’ equity resulted primarily from net income of $206.9 million during the year ended December 31, 2023, less dividends paid or declared on our common stock of $62.0 million during the year ended December 31, 2023.
The ratio of our average interest-earning assets to average interest-bearing liabilities increased from 149.9% for the year ended December 31, 2021 to 157.5% for the year ended December 31, 2022, as average noninterest-bearing deposits and stockholders’ equity grew by a combined $861.6 million, or 18.1%, from 2021 to 2022.
The ratio of our average interest-earning assets to average interest-bearing liabilities decreased from 157.5% for the year ended December 31, 2022 to 135.6% for the year ended December 31, 2023, as average noninterest-bearing deposits and stockholders’ equity decreased by a combined $1.4 billion, or 24.9%, from 2022 to 2023.
(3) Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21%. (4) Unrealized (losses) gains of $(30,770), $25,276 , and $18,955 are excluded from the yield calculation in 2022 , 2021, and 2020, respectively.
(3) Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21%. (4) Unrealized (losses) gains of $(70,960), $(30,770) and $25,276 are excluded from the yield calculation in 2023, 2022 and 2021, respectively. (5) Accretion on acquired CD premiums of $75 are included in interest expense in 2021.
Our exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, credit card arrangements and standby letters of credit is represented by the contractual or notional amount of those instruments.
All such credit arrangements bear interest at variable rates and we have no such credit arrangements which bear interest at fixed rates. 55 Our exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, credit card arrangements and standby letters of credit is represented by the contractual or notional amount of those instruments.
See “—Quantitative and Qualitative Analysis of Market Risk” below in Item 7A for additional information. 56 Liquidity and Capital Adequacy Sources and Uses of Funds The following table illustrates, during the years presented, the mix of our funding sources and the assets in which those funds are invested as a percentage of our average total assets for the period indicated.
Liquidity and Capital Adequacy Sources and Uses of Funds The following table illustrates, during the years presented, the mix of our funding sources and the assets in which those funds are invested as a percentage of our average total assets for the period indicated.
Average assets totaled $14.70 billion in 2022 compared to $13.56 billion in 2021, and to $10.64 billion in 2020.
Average assets totaled $15.07 billion in 2023, compared to $14.70 billion in 2022, and $13.56 billion in 2021.
From 2021 to 2022, our asset volumes increased primarily as a result of the growth in loan balances as well as an increase in taxable debt securities, while the volume change from our liabilities remained relatively consistent.
From 2022 to 2023, our volume component was favorable as asset volumes increased primarily as a result of the growth in loan balances as well as an increase in taxable debt securities, while the volume change from our liabilities was primarily driven by growth in money market balances.
Year Ended December 31, 2022 2021 Change from the Prior Year (Dollars in Thousands) Interest income $ 559,315 $ 416,305 34.4 % Interest expense 88,423 31,802 178.0 % Net interest income 470,892 384,503 22.5 % Provision for credit losses 37,607 31,517 19.3 % Net interest income after provision for credit losses 433,285 352,986 22.7 % Noninterest income 33,359 33,452 (0.3 )% Noninterest expense 157,816 133,089 18.68 % Income before income taxes 308,828 253,349 21.9 % Income taxes 57,324 45,615 25.7 % Net income 251,504 207,734 21.1 % Dividends on preferred stock 62 62 - % Net income available to common stockholders $ 251,442 $ 207,672 21.1 % 41 Year Ended December 31, 2021 2020 Change from the Prior Year (Dollars in Thousands) Interest income $ 416,305 $ 389,022 7.0 % Interest expense 31,802 50,985 (37.6 )% Net interest income 384,503 338,037 13.7 % Provision for credit losses 31,517 42,434 (25.7 )% Net interest income after provision for credit losses 352,986 295,603 19.4 % Noninterest income 33,452 30,116 11.1 % Noninterest expense 133,089 111,511 19.4 % Income before income taxes 253,349 214,208 18.3 % Income taxes 45,615 44,639 2.2 % Net income 207,734 169,569 22.5 % Dividends on preferred stock 62 63 (1.6 )% Net income available to common stockholders $ 207,672 $ 169,506 22.5 % Performance Ratios The following table presents selected ratios of our results of operations for the years ended December 31, 2022, 2021 and 2020.
Year Ended December 31, 2023 2022 Change from the Prior Year (Dollars in Thousands) Interest income $ 813,246 $ 559,315 45.4 % Interest expense 402,309 88,423 355.0 % Net interest income 410,937 470,892 (12.7 )% Provision for credit losses 18,715 37,607 (50.2 )% Net interest income after provision for credit losses 392,222 433,285 (9.5 )% Noninterest income 30,417 33,359 (8.8 )% Noninterest expense 178,051 157,816 12.8 % Income before income taxes 244,588 308,828 (20.8 )% Income taxes 37,735 57,324 (34.2 )% Net income 206,853 251,504 (17.8 )% Dividends on preferred stock 62 62 - % Net income available to common stockholders $ 206,791 $ 251,442 (17.8 )% 42 Year Ended December 31, 2022 2021 Change from the Prior Year (Dollars in Thousands) Interest income $ 559,315 $ 416,305 34.4 % Interest expense 88,423 31,802 178.0 % Net interest income 470,892 384,503 22.5 % Provision for credit losses 37,607 31,517 19.3 % Net interest income after provision for credit losses 433,285 352,986 22.7 % Noninterest income 33,359 33,452 (0.3 )% Noninterest expense 157,816 133,089 18.6 % Income before income taxes 308,828 253,349 21.9 % Income taxes 57,324 45,615 25.7 % Net income 251,504 207,734 21.1 % Dividends on preferred stock 62 62 - % Net income available to common stockholders $ 251,442 $ 207,672 21.1 % Performance Ratios The following table presents selected ratios of our results of operations for the years ended December 31, 2023, 2022 and 2021.
Because of the uncertainty of estimates involved, the ultimate resolution may result in a payment that is different from the current estimate of the tax liabilities and can be significant to the Company’s consolidated financial position, results of operations or cash flows.
Because of the uncertainty of estimates involved, the ultimate resolution may result in a payment that is different from the current estimate of the tax liabilities and can be significant to the Company’s consolidated financial position, results of operations or cash flows. 59 Adoption of Recent Accounting Pronouncements New accounting standards are discussed in Note 1, “ Summary of Significant Accounting Policies ” to the Notes to Consolidated Financial Statements.
Return on average assets was 1.71% in 2022, compared to 1.53% in 2021, and return on average common stockholders’ equity was 20.73% in 2022, compared to 19.27% in 2021.
Return on average assets was 1.37% in 2023, compared to 1.71% in 2022, and return on average common stockholders’ equity was 15.13% in 2023, compared to 20.73% in 2022.
We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. 55 The following table sets forth our credit arrangements and financial instruments whose contract amounts represent credit risk as of December 31, 2022, 2021 and 2020: 2022 2021 2020 (In Thousands) Commitments to extend credit $ 4,230,485 $ 3,515,818 $ 2,606,258 Credit card arrangements 480,983 366,525 286,128 Standby letters of credit and financial guarantees 67,285 61,856 66,208 Total $ 4,778,753 $ 3,944,199 $ 2,958,594 Commitments to extend credit beyond current fundings are agreements to lend to a customer as long as there is no violation of any condition established in the contract.
The following table sets forth our credit arrangements and financial instruments whose contract amounts represent credit risk as of December 31, 2023, 2022 and 2021: 2023 2022 2021 (In Thousands) Commitments to extend credit $ 3,410,283 $ 4,230,485 $ 3,515,818 Credit card arrangements 381,524 480,983 366,525 Standby letters of credit and financial guarantees 86,065 67,285 61,856 Total $ 3,877,872 $ 4,778,753 $ 3,944,199 Commitments to extend credit beyond current fundings are agreements to lend to a customer as long as there is no violation of any condition established in the contract.
At December 31, 2021, the allowance for unfunded commitments was $1.3 million. The following table presents the allocation of the allowance for loan losses for each respective loan category with the corresponding percent of loans in each category to total loans.
The following table presents the allocation of the allowance for loan losses for each respective loan category with the corresponding percent of loans in each category to total loans.
Average Balance Sheets and Net Interest Analysis On a Fully Taxable-Equivalent Basis For the Year Ended December 31, (In thousands, except Average Yields and Rates) 2022 2021 2020 Average Balance Interest Earned / Paid Average Yield / Rate Average Balance Interest Earned / Paid Average Yield / Rate Average Balance Interest Earned / Paid Average Yield / Rate Assets: Interest-earning assets: Loans, net of unearned income (1)(2): Taxable $ 10,544,193 $ 498,810 4.73 % $ 8,698,782 $ 384,675 4.42 % $ 8,123,927 $ 361,370 4.45 % Tax-exempt (3) 22,026 1,055 4.79 26,779 1,094 4.09 31,064 1,274 4.10 Total loans, net of unearned income 10,566,219 499,865 4.73 8,725,561 385,769 4.42 8,154,991 362,644 4.45 Mortgage loans held for sale 1,460 43 2.95 8,242 155 1.88 14,337 231 1.61 Debt securities: Taxable 1,712,715 40,767 2.38 980,462 25,413 2.59 801,134 22,122 2.76 Tax-exempt (3) 6,658 172 2.58 14,983 369 2.46 34,975 870 2.49 Total debt securities (4) 1,719,373 40,939 2.38 995,445 25,782 2.59 836,109 22,992 2.75 Federal funds sold 58,307 1,556 2.67 17,091 29 0.17 61,712 332 0.54 Restricted equity securities 7,637 353 4.62 220 7 3.18 - - - Interest-bearing balances with banks 1,832,215 16,811 0.92 3,351,462 4,840 0.14 1,170,095 3,165 0.27 Total interest-earning assets $ 14,185,211 $ 559,567 3.94 % $ 13,098,021 $ 416,582 3.18 % 10,237,244 389,364 3.80 % Non-interest-earning assets: Cash and due from banks 162,855 81,539 77,413 Net premises and equipment 60,586 60,798 57,310 Allowance for loan losses, accrued interest and other assets 294,823 314,863 272,900 Total assets $ 14,703,475 $ 13,555,221 $ 10,644,867 43 Interest-bearing liabilities: Interest-bearing deposits: Interest-bearing demand deposits $ 1,695,738 6,157 0.36 % 1,394,678 2,687 0.19 % 1,059,629 3,752 0.35 % Savings 138,917 421 0.30 110,968 197 0.18 77,364 274 0.35 Money market 4,770,568 43,335 0.91 5,202,374 13,697 0.26 4,519,170 25,758 0.57 Time deposits (5) 807,327 9,483 1.17 805,982 9,988 1.24 836,098 15,446 1.85 Total interest-bearing deposits 7,412,550 59,396 0.80 7,514,002 26,569 0.35 6,492,261 45,230 0.70 Federal funds purchased 1,528,866 26,267 1.72 1,160,745 2,473 0.21 627,561 2,700 0.43 Other borrowings 64,716 2,760 4.26 64,696 2,760 4.27 64,709 3,055 4.72 Total interest-bearing liabilities $ 9,006,132 $ 88,423 0.98 % $ 8,739,443 $ 31,802 0.36 % 7,184,531 50,985 0.71 % Non-interest-bearing liabilities: Non-interest-bearing checking 4,415,972 3,689,311 2,492,500 Other liabilities 68,393 48,392 53,874 Stockholders' equity 1,232,460 1,059,317 898,023 Unrealized gains on securities (19,482 ) 18,758 15,939 Total liabilities and stockholders' equity $ 14,703,475 $ 13,555,221 $ 10,644,867 Net interest income $ 471,144 $ 384,780 $ 338,379 Net interest spread 2.96 % 2.82 % 3.09 % Net interest margin (6) 3.32 % 2.94 % 3.31 % (1) Non-accrual loans are included in average loan balances in all periods.
Average Balance Sheets and Net Interest Analysis On a Fully Taxable-Equivalent Basis For the Year Ended December 31, (In thousands, except Average Yields and Rates) 2023 2022 2021 Average Balance Interest Earned / Paid Average Yield / Rate Average Balance Interest Earned / Paid Average Yield / Rate Average Balance Interest Earned / Paid Average Yield / Rate Assets: Interest-earning assets: Loans, net of unearned income (1)(2): Taxable $ 11,584,541 $ 698,177 6.03 % $ 10,544,193 $ 498,810 4.73 % $ 8,698,782 $ 384,675 4.42 % Tax-exempt (3) 18,271 834 4.56 22,026 1,055 4.79 26,779 1,094 4.09 Total loans, net of unearned income 11,602,812 699,011 6.02 10,566,219 499,865 4.73 8,725,561 385,769 4.42 Mortgage loans held for sale 4,293 259 6.03 1,460 43 2.95 8,242 155 1.88 Debt securities: Taxable 1,881,074 53,456 2.84 1,712,715 40,767 2.38 980,462 25,413 2.59 Tax-exempt (3) 2,716 79 2.91 6,658 172 2.58 14,983 369 2.46 Total debt securities (4) 1,883,790 53,535 2.84 1,719,373 40,939 2.38 995,445 25,782 2.59 Federal funds sold 53,376 2,844 5.33 58,307 1,556 2.67 17,091 29 0.17 Restricted equity securities 9,359 673 7.19 7,637 353 4.62 220 7 3.18 Interest-bearing balances with banks 1,066,159 57,064 5.35 1,832,215 16,811 0.92 3,351,462 4,840 0.14 Total interest-earning assets $ 14,619,789 $ 813,386 5.56 % $ 14,185,211 $ 559,567 3.94 % 13,098,021 416,582 3.18 % Non-interest-earning assets: Cash and due from banks 105,140 162,855 81,539 Net premises and equipment 60,335 60,586 60,798 Allowance for loan losses, accrued interest and other assets 281,946 294,823 314,863 Total assets $ 15,067,210 $ 14,703,475 $ 13,555,221 Interest-bearing liabilities: Interest-bearing deposits: Interest-bearing demand deposits $ 1,928,133 43,265 2.24 % 1,695,738 6,157 0.36 % 1,394,678 2,687 0.19 % Savings 119,049 1,656 1.39 138,917 421 0.30 110,968 197 0.18 Money market 6,347,456 250,674 3.95 4,770,568 43,335 0.91 5,202,374 13,697 0.26 Time deposits (5) 1,010,683 36,144 3.58 807,327 9,483 1.17 805,982 9,988 1.24 Total interest-bearing deposits 9,405,321 331,739 3.53 7,412,550 59,396 0.80 7,514,002 26,569 0.35 Federal funds purchased 1,288,877 66,730 5.18 1,528,866 26,267 1.72 1,160,745 2,473 0.21 Other borrowings 86,102 3,839 4.46 64,716 2,760 4.26 64,696 2,760 4.27 Total interest-bearing liabilities $ 10,780,300 $ 402,308 3.73 % $ 9,006,132 $ 88,423 0.98 % 8,739,443 31,802 0.36 % Non-interest-bearing liabilities: Non-interest-bearing checking 2,857,831 4,415,972 3,689,311 Other liabilities 62,369 68,393 48,392 Stockholders' equity 1,418,189 1,232,460 1,059,317 Unrealized gains on securities (51,479 ) (19,482 ) 18,758 Total liabilities and stockholders' equity $ 15,067,210 $ 14,703,475 $ 13,555,221 Net interest income $ 411,078 $ 471,144 $ 384,780 Net interest spread 1.83 % 2.96 % 2.82 % Net interest margin (6) 2.81 % 3.32 % 2.94 % (1) Non-accrual loans are included in average loan balances in all periods.
We expect the national unemployment rate to increase slightly and GDP growth rate to remain stable over the forecast period. Loans with similar risk characteristics are evaluated in pools and, depending on the nature of each identified pool, the Company utilizes a discounted cash flow (“DCF”), probability of default / loss given default (“PD/LGD”) or remaining life method.
At December 31, 2022, we forecasted a moderately higher national unemployment rate and significantly lower national GDP compared to December 31, 2021. 52 Loans with similar risk characteristics are evaluated in pools and, depending on the nature of each identified pool, the Company utilizes a discounted cash flow (“DCF”), probability of default / loss given default (“PD/LGD”) or remaining life method.
Loan fees include accretion of PPP loan fees of $19,604 and $35,204, are included in interest income in 2022 and 2021, respectively. (2) Amortization of acquired loan premiums of $161, $71, and $100, is included in interest income in 2022, 2021, and 2020, respectively.
Loan fees of $13,752, $19,605 and $35,204 are included in interest income in 2023, 2022 and 2021, respectively. Loan fees include accretion of PPP loan fees of $40, $7,730 and $27,330 in 2023, 2022 and 2021, respectively. (2) Amortization of acquired loan premiums of $197, $161 and $71 is included in interest income in 2023, 2022 and 2021, respectively.
For the Years Ended December 31, 2022 2021 2020 Percentage Percentage Percentage of loans in of loans in of loans in each each each category to category to category to Amount total loans Amount total loans Amount total loans (Dollars in Thousands) Commercial, financial and agricultural $ 42,830 26.91 % $ 41,869 31.30 % $ 36,370 38.93 % Real estate - construction 42,889 13.11 26,994 11.57 16,057 7.01 Real estate - mortgage 58,652 59.41 45,829 56.43 33,722 53.29 Consumer 1,926 0.57 1,968 0.70 1,793 0.77 Total $ 146,297 100.00 % $ 116,660 100.00 % $ 87,942 100.00 % The Company assesses the adequacy of its allowance for credit losses ("ACL") at the end of each calendar quarter.
For the Years Ended December 31, 2023 2022 2021 Percentage Percentage Percentage of loans in of loans in of loans in each each each category to category to category to Amount total loans Amount total loans Amount total loans (Dollars in Thousands) Commercial, financial and agricultural $ 52,121 24.22 % $ 42,830 26.91 % $ 41,869 31.30 % Real estate - construction 44,658 13.03 42,889 13.11 26,994 11.57 Real estate - mortgage 55,126 62.20 58,652 59.41 45,829 56.43 Consumer 1,412 0.55 1,926 0.57 1,968 0.70 Total $ 153,317 100.00 % $ 146,297 100.00 % $ 116,660 100.00 % The Company assesses the adequacy of its ACL at the end of each calendar quarter.
To the extent the PPP loans are forgiven, this represents outside funds to our borrowers; and, especially with respect to vulnerable industries, we believe these capital injections have been instrumental in assisting our borrowers in navigating through the pandemic.
We funded approximately 7,400 loans for a total amount of $1.5 billion for clients under the PPP since April 2020. To the extent the PPP loans are forgiven, this represents outside funds to our borrowers; and, especially with respect to vulnerable industries, we believe these capital injections have been instrumental in assisting our borrowers in navigating through the pandemic.
The following table presents the average balance and average rate paid on each of the following deposit categories at the bank level for years ended December 31, 2022, 2021 and 2020: For Year Ended December 31, 2022 2021 2020 Average Balance Yields/Rates Average Balance Yields/Rates Average Balance Yields/Rates Types of Deposits: (Dollars in Thousands) Non-interest-bearing demand deposits $ 4,415,972 - % $ 3,689,311 - % $ 2,492,500 - % Interest-bearing demand deposits 1,695,738 0.36 % 1,394,678 0.19 % 1,059,629 0.35 % Money market accounts 4,770,568 0.91 % 5,202,374 0.26 % 4,519,170 0.57 % Savings accounts 138,917 0.30 % 110,968 0.18 % 77,364 0.35 % Time deposits 757,327 1.17 % 755,982 1.24 % 768,016 1.90 % Brokered time deposits 50,000 1.68 % 50,000 1.68 % 68,082 1.68 % Total deposits $ 11,828,522 $ 11,203,313 $ 8,984,761 At December 31, 2022 and December 31, 2021, we estimate that we had approximately $8.95 billion and $10.65 billion, respectively, in uninsured deposits, which are the portion of deposit accounts that exceed the FDIC insurance limit. 54 The following table presents the maturities of our time deposits in excess of insurance limit as of December 31, 2022.
The following table presents the average balance and average rate paid on each of the following deposit categories at the bank level for years ended December 31, 2023, 2022 and 2021: For Year Ended December 31, 2023 2022 2021 Average Balance Yields/Rates Average Balance Yields/Rates Average Balance Yields/Rates Types of Deposits: (Dollars in Thousands) Non-interest-bearing demand deposits $ 2,857,831 - % $ 4,415,972 - % $ 3,689,311 - % Interest-bearing demand deposits 1,928,133 2.24 % 1,695,738 0.36 % 1,394,678 0.19 % Money market accounts 6,347,456 3.95 % 4,770,568 0.91 % 5,202,374 0.26 % Savings accounts 119,049 1.39 % 138,917 0.30 % 110,968 0.18 % Time deposits 1,010,683 3.58 % 757,327 1.17 % 755,982 1.24 % Brokered time deposits - - % 50,000 1.68 % 50,000 1.68 % Total deposits $ 12,263,152 $ 11,828,522 $ 11,203,313 At December 31, 2023 and December 31, 2022, we estimate that we had approximately $8.76 billion and $7.66 billion, respectively, in total uninsured deposits.
Our principal expenses are interest paid on savings and other deposits, interest paid on our other borrowings, employee compensation, office expenses and other overhead expenses. 40 2022 Highlights ● Diluted earnings per common share of $4.61 in 2022 increased $0.79, or 21%, from 2021. ● Average loans of $10.56 billion for 2022 increased $1.84 billion, or 21%, from a year ago. ● Average deposits of $11.83 billion for 2022 increased $625.2 million, or 6%, from a year ago. ● Net interest income of $470.9 million in 2022 increased $86.4 million, or 22%, from 2021.
Our principal expenses are interest paid on savings and other deposits, interest paid on our other borrowings, employee compensation, office expenses, and other overhead expenses. 41 2023 Highlights ● Diluted earnings per common share of $3.79 in 2023 decreased $0.82, or 18%, from 2022. ● Average loans of $11.60 billion for 2023 increased $1.04 billion, or 10%, from a year ago. ● Average deposits of $12.26 billion for 2023 increased $434.6 million, or 4%, from a year ago. ● Net interest income of $410.9 million in 2023 decreased $60.0 million, or 13%, from 2022.
(5) Accretion on acquired CD premiums of $75 and $63 are included in interest expense in 2021 and 2020, respectively. (6) Net interest margin is net interest revenue divided by average interest-earning assets. The following table reflects changes in our net interest margin as a result of changes in the volume and rate of our interest-bearing assets and liabilities.
(6) Net interest margin is net interest revenue divided by average interest-earning assets. 44 The following table reflects changes in our net interest margin as a result of changes in the volume and rate of our interest-bearing assets and liabilities.
The amortized cost of securities in our portfolio totaled $1.74 billion at December 31, 2022, compared to $1.29 billion at December 31, 2021. 47 The following table presents the book value and weighted average yield of our securities as of December 31, 2022 by their stated maturities (this maturity schedule excludes security prepayment and call features).
The following table presents the book value and weighted average yield of our securities as of December 31, 2023 by their stated maturities (this maturity schedule excludes security prepayment and call features).
Federal funds purchased from correspondent banks averaged $1.53 billion, $1.16 billion and $627.6 million for 2022, 2021 and 2020, respectively. We paid average interest rates on these funds of 1.72%, 0.21% and 0.43% for the same three years, respectively. The maximum amount outstanding at a month-end during 2022 and 2021 was $1.44 billion and $1.71 billion, respectively.
We paid average interest rates on these funds of 5.18%, 1.72%, and 0.21% for the same three years, respectively. The maximum amount outstanding at a month-end during 2023 and 2022 was $1.47 billion and $1.44 billion, respectively.
The ACL for December 31, 2022 and 2021 was calculated under the CECL methodology and totaled $146.3 million and $116.7 million, or 1.25% and 1.22% of loans, net of unearned income, respectively. Excluding PPP loans, the allowance for credit losses as a percentage of total loans at December 31, 2022 and 2021 was 1.25% and 1.25%, respectively.
The ACL for December 31, 2023 and 2022 was calculated under the CECL methodology and totaled $153.3 million and $146.3 million, or 1.32% and 1.25% of loans, net of unearned income, respectively.
During 2022, we had net charged-off loans totaling $8.0 million, compared to net charged-off loans of $2.8 million for 2021. 52% of the $8.0 million net charge-off in 2022 is represented by three loans. The ratio of net charged-off loans to average loans was 0.06% for 2022 compared to 0.03% for 2021.
During 2023, we had net charged-off loans totaling $11.7 million, compared to net charged-off loans of $7.6 million for 2022. 52% of the $7.6 million net charge-off in 2022 was represented by three loans. In 2023, 62% of the $11.7 million net charge-off was represented by four loans.
As of and for the Years Ended December 31, 2022 2021 2020 (Dollars in Thousands) Allowance for credit losses to total loans outstanding 1.25 % 1.22 % 1.04 % Allowance for credit losses $ 146,297 $ 116,660 $ 87,942 Total loans outstanding $ 11,687,968 $ 9,532,934 $ 8,465,688 Nonaccrual loans to total loans outstanding 0.11 % 0.07 % 0.17 % Nonaccrual loans $ 12,450 $ 6,762 $ 13,973 Total loans outstanding $ 11,687,968 $ 9,532,934 $ 8,465,688 Allowance for credit losses to nonaccrual loans 1,175.08 % 1,725.23 % 629.37 % Allowance for credit losses $ 146,297 $ 116,660 $ 87,942 Nonaccrual loans $ 12,450 $ 6,762 $ 13,973 Net charge-offs during the period to average loans outstanding: Commercial, financial and agricultural 0.24 % 0.07 % 0.75 % Net charge-offs during the period $ 7,244 $ 2,318 $ 23,684 Average amount outstanding $ 3,042,860 $ 3,127,227 $ 3,145,647 Real estate - construction - % - % 0.18 % Net charge-offs (recoveries) during the period $ - $ (38 ) $ 1,000 Average amount outstanding $ 1,378,483 $ 806,705 $ 547,818 Real estate - mortgage: Owner-occupied commercial 0.01 % - % 0.23 % Net charge-offs during the period $ 170 $ 54 $ 3,884 Average amount outstanding $ 2,072,880 $ 1,760,591 $ 1,663,831 1-4 family mortgage - % 0.02 % 0.06 % Net charge-offs during the period $ 51 $ 132 $ 373 Average amount outstanding $ 1,044,763 $ 739,389 $ 673,895 Other mortgage: - % - % - % Net charge-offs during the period $ (12 ) $ 7 $ - Average amount outstanding $ 3,266,545 $ 2,294,574 $ 1,931,130 Total real estate - mortgage - % - % 0.10 % Net charge-offs during the period $ 208 $ 193 $ 4,257 Average amount outstanding $ 6,384,188 $ 4,794,554 $ 4,268,856 Consumer 0.01 % 0.50 % 0.22 % Net charge-offs during the period $ 151 $ 326 $ 135 Average amount outstanding $ 1,044,763 $ 64,736 $ 61,661 Total loans 0.07 % 0.03 % 0.36 % Net charge-offs during the period $ 7,603 $ 2,799 $ 29,076 Average amount outstanding $ 10,566,219 $ 8,725,561 $ 8,154,991 51 Effective January 1, 2020, we adopted the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 326, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which replaced the incurred loss methodology for determining our provision for credit losses and allowance for credit losses with the current expected credit loss (“CECL”) model.
As of and for the Years Ended December 31, 2023 2022 2021 (Dollars in Thousands) Allowance for credit losses to total loans outstanding 1.32 % 1.25 % 1.22 % Allowance for credit losses $ 153,317 $ 146,297 $ 116,660 Total loans outstanding $ 11,658,829 $ 11,687,968 $ 9,532,934 Nonaccrual loans to total loans outstanding 0.17 % 0.11 % 0.07 % Nonaccrual loans $ 19,349 $ 12,450 $ 6,762 Total loans outstanding $ 11,658,829 $ 11,687,968 $ 9,532,934 Allowance for credit losses to nonaccrual loans 792.38 % 1,175.08 % 1,725.23 % Allowance for credit losses $ 153,317 $ 146,297 $ 116,660 Nonaccrual loans $ 19,349 $ 12,450 $ 6,762 Net charge-offs during the period to average loans outstanding: Commercial, financial and agricultural 0.37 % 0.24 % 0.07 % Net charge-offs during the period $ 10,429 $ 7,244 $ 2,318 Average amount outstanding $ 2,810,201 $ 3,042,860 $ 3,127,227 Real estate - construction Net charge-offs (recoveries) during the period $ 105 $ - $ (38 ) Average amount outstanding $ 1,519,619 $ 1,378,483 $ 806,705 Real estate mortgage: Owner-occupied commercial 0.01 % 0.01 % - % Net charge-offs during the period $ 115 $ 170 $ 54 Average amount outstanding $ 2,257,163 $ 2,072,880 $ 1,760,591 1-4 family mortgage - % - % 0.02 % Net charge-offs during the period $ 54 $ 51 $ 132 Average amount outstanding $ 1,249,938 $ 1,044,763 $ 739,389 Other mortgage: - % - % - % Net charge-offs during the period $ - $ (12 ) $ 7 Average amount outstanding $ 3,744,346 $ 3,266,545 $ 2,294,574 Total real estate - mortgage Net charge-offs during the period $ 169 $ 208 $ 193 Average amount outstanding $ 7,251,447 $ 6,384,188 $ 4,794,554 Consumer 1.55 % 0.01 % 0.50 % Net charge-offs during the period $ 990 $ 151 $ 326 Average amount outstanding $ 63,777 $ 1,044,763 $ 64,736 Total loans 0.10 % 0.08 % 0.03 % Net charge-offs during the period $ 11,695 $ 7,971 $ 2,799 Average amount outstanding $ 11,602,812 $ 10,566,219 $ 8,725,561 51 As described below under Recently Adopted Accounting Pronouncements, the Company adopted ASU 2016 - 13 , Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL”) Accounting Standard Codification (“ASC”) 326 effective January 1, 2020.
Noninterest Income Noninterest income for the years ended December 31, 2022 and 2021 were as follows. 2022 2021 Change Percentage change Service charges on deposit accounts $ 8,033 $ 6,839 $ 1,194 17.5 % Mortgage banking 2,438 7,340 (4,902 ) (66.8 )% Credit card income 9,917 7,347 2,570 35.0 % Securities (losses) gains (6,168 ) 620 (6,788 ) (1,094.8 )% Increase in cash surrender value life insurance 6,478 6,642 (164 ) (2.5 )% Other operating income 12,661 4,664 7,997 171.5 % Total noninterest income $ 33,359 $ 33,452 $ (93 ) (0.3 )% 45 Noninterest income decreased $93,000, or 0.3%, to $33.4 million in 2022 from $33.5 million in 2021.
Noninterest Income Noninterest income for the years ended December 31, 2023 and 2022 were as follows. 2023 2022 Change Percentage change Service charges on deposit accounts $ 8,420 $ 8,033 $ 387 4.8 % Mortgage banking 2,755 2,438 317 13.0 % Credit card income 8,631 9,917 (1,286 ) (13.0 )% Securities (losses) gains - (6,168 ) 6,168 (100.0 )% Increase in cash surrender value life insurance 7,574 6,478 1,096 16.9 % Other operating income 3,037 12,661 (9,624 ) (76.0 )% Total noninterest income $ 30,417 $ 33,359 $ (2,942 ) (8.8 )% 46 Noninterest income decreased $2.9 million, or 8.8%, to $30.4 million in 2023 from $33.4 million in 2022.
Treasury securities represented 30.0% of the investment portfolio. All of our investments in mortgage-backed securities are pass-through mortgage-backed securities. We generally do not hold, and did not have at December 31, 2022, any structured investment vehicles or any private-label mortgage-backed securities.
We generally do not hold, and did not have at December 31, 2023, any structured investment vehicles or any private-label mortgage-backed securities. The amortized cost of securities in our portfolio totaled $1.95 billion at December 31, 2023, compared to $1.74 billion at December 31, 2022.
At December 31, 2022, we forecasted a moderately higher national unemployment rate and significantly lower national GDP compared to December 31, 2021. At December 31, 2021, we forecasted a national unemployment rate and national GDP growth rate similar to levels experienced just prior to the pandemic.
At December 31, 2023, we forecasted a slightly lower national unemployment rate and moderately higher national GDP compared to December 31, 2022.
We maintain a higher level of earning assets in our business model than do our peers because we allocate fewer of our resources to facilities, ATMs, and cash and due-from-bank accounts used for transaction processing. Earning assets as of December 31, 2022 were $14.37 billion, or 98.4% of total assets of $14.60 billion.
Earning assets include loans, securities, short-term investments and bank-owned life insurance contracts. We maintain a higher level of earning assets in our business model than do our peers because we allocate fewer of our resources to facilities, ATMs, and cash and due-from-bank accounts used for transaction processing.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAfter starting the year at a rate of 0.15%, the Federal Reserve increased its targeted federal funds rate by 425 basis points and ended the 2022 year at a 4.40%.
Biggest changeAfter starting the year 2022 at a rate of 0.15%, the Federal Reserve increased its targeted federal funds rate by 525 basis points and ended the year 2023 at 5.40%. As of December 31, 2023, the model shows decreases in our EVE for all rate shock scenarios.
The rate shock procedure measures the impact on the economic value of equity (EVE) which is a measure of long term interest rate risk. EVE is the difference between the market value of our assets and the liabilities and is our liquidation value.
The rate shock procedure measures the impact on the economic value of equity (“EVE”), which is a measure of long-term interest rate risk. EVE is the difference between the market value of our assets and the liabilities and is our liquidation value.
As of December 31, 2022, our gap was within such ranges. The interest rate risk model measures scheduled maturities in periods of three months, four to twelve months, one to five years and over five years. The chart below illustrates our rate-sensitive position at December 31, 2022. Management uses the one-year gap as the appropriate time period for setting strategy.
As of December 31, 2023, our gap was within such ranges. The interest rate risk model measures scheduled maturities in periods of three months, four to twelve months, one to five years and over five years. The chart below illustrates our rate-sensitive position at December 31, 2023. Management uses the one-year gap as the appropriate time period for setting strategy.
If rates are rising, and the level of rate-sensitive assets exceed the level of rate-sensitive liabilities, the impact on the net interest margin will be favorable. Conversely, if rates are falling, and the level of rate-sensitive assets is less than the level of rate-sensitive liabilities, the impact on the net interest margin will be unfavorable.
If rates are rising, and the level of rate-sensitive liabilities exceeds the level of rate-sensitive assets, the net interest margin will be negatively impacted. Conversely, if rates are falling, and the level of rate-sensitive liabilities exceeds the level of rate-sensitive assets, the impact on the net interest margin will be favorable.
Managing interest rate risk is further complicated by the fact that all rates do not change at the same pace; in other words, short term rates may be rising while longer term rates remain stable.
Managing interest rate risk is further complicated by the fact that all rates do not change at the same pace; in other words, short term rates may be rising while longer term rates remain stable. In addition, different types of rate-sensitive assets and rate-sensitive liabilities react differently to changes in rates.
In addition, different types of rate-sensitive assets and rate-sensitive liabilities react differently to changes in rates. 59 To manage interest rate risk, we must take a position on the expected future trend of interest rates. Rates may rise, fall, or remain the same.
To manage interest rate risk, we must take a position on the expected future trend of interest rates. Rates may rise, fall, or remain the same.
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Rate Sensitive Gap Analysis 1-3 Months 4-12 Months 1-5 Years Over 5 Years Total (Dollars in Thousands) Interest-earning assets: Loans, including mortgages held for sale $ 5,013,349 $ 1,696,696 $ 4,436,221 $ 397,011 $ 11,543,278 Securities 63,079 119,636 1,043,469 460,485 1,686,670 Federal funds sold 1,515 - - - 1,515 Interest bearing balances with banks 708,221 - - - 708,221 Total interest-earning assets $ 5,786,165 $ 1,816,333 $ 5,479,690 $ 857,496 $ 13,939,684 Interest-bearing liabilities: Deposits: Interest-bearing checking $ 1,845,939 $ - $ - $ - $ 1,845,939 Money market and savings 5,515,052 - - - 5,515,052 Time deposits 311,315 336,066 215,426 - 862,807 Federal funds purchased - - - 64,726 64,726 Other borrowings 1,618,798 - - - 1,618,798 Total interest-bearing liabilities 9,291,104 336,066 215,426 64,726 9,907,322 Interest sensitivity gap $ (3,504,939 ) $ 1,480,267 $ 5,264,264 $ 792,770 $ 4,032,362 Cumulative sensitivity gap $ (3,504,939 ) $ (2,024,672 ) $ 3,239,591 $ 4,032,362 $ - Percent of cumulative sensitivity Gap to total interest-earning assets (25.14 )% (14.52 )% 23.24 % 28.93 % The interest rate risk model that defines the gap position also performs a “rate shock” test of the balance sheet.
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Rate Sensitive Gap Analysis 1-3 Months 4-12 Months 1-5 Years Over 5 Years Total (Dollars in Thousands) Interest-earning assets: Loans, including mortgages held for sale $ 5,558,992 $ 1,674,176 $ 4,003,951 $ 426,784 $ 11,663,903 Securities 202,834 592,306 812,661 285,271 1,893,073 Federal funds sold 100,575 - - - 100,575 Interest bearing balances with banks 1,907,083 - - - 1,907,083 Total interest-earning assets $ 7,769,484 $ 2,266,483 $ 4,816,612 $ 712,055 $ 15,564,634 Interest-bearing liabilities: Deposits: Interest-bearing checking $ 2,396,078 $ - $ - $ - $ 2,396,078 Money market and savings 7,078,990 - - - 7,078,990 Time deposits 296,906 604,146 254,290 - 1,155,342 Federal funds purchased - - 30,000 34,735 64,735 Other borrowings 1,256,724 - - - 1,256,724 Total interest-bearing liabilities 11,028,698 604,146 284,290 34,735 11,951,869 Interest sensitivity gap $ (3,259,214 ) $ 1,662,336 $ 4,532,322 $ 677,320 $ 3,612,765 Cumulative sensitivity gap $ (3,259,214 ) $ (1,596,877 ) $ 2,935,445 $ 3,612,765 $ - Percent of cumulative sensitivity Gap to total interest-earning assets (20.94 )% (10.26 )% 18.86 % 23.21 % 60 The interest rate risk model that defines the gap position also performs a “rate shock” test of the balance sheet.
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At December 31, 2022, the model shows an increase in our EVE for an upward shift of 100 basis points and decrease in upward shifts of 200, 300 and 400 basis points.
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The chart below identifies the EVE impact of rate shocks of down 400 to up 400 in 100 basis point increments.
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The chart below identifies the EVE impact of a downward shift in rates of 100 basis points and an upward shift in rates of 100, 200, 300 and 400 basis points. 60 Economic Value of Equity Under Rate Shock At December 31, 2022 0 bps -100 bps +100 bps +200 bps +300 bps +400 bps (Dollars in Thousands) Economic value of equity $ 1,297,896 $ 1,216,129 $ 1,299,194 $ 1,283,619 $ 1,275,832 $ 1,264,151 Actual dollar change $ (81,767 ) $ 1,298 $ (14,277 ) $ (22,064 ) $ (33,745 ) Percent change (6.30 )% 0.10 % (1.10 )% (1.70 )% (2.60 )% The one-year gap ratio of negative -14.52% indicates that we would show a decrease in net interest income in a rising rate environment, and the EVE rate shock shows that the EVE would increase in a rising rate environment.
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Economic Value of Equity Under Rate Shock At December 31, 2023 0 bps -400 bps -300 bps -200 bps -100 bps +100 bps +200 bps +300 bps +400 bps (Dollars in Thousands) Economic value of equity $ 1,440,405 $ 1,148,003 $ 1,270,437 $ 1,361,183 $ 1,420,239 $ 1,428,882 $ 1,398,633 $ 1,389,991 $ 1,377,027 Actual dollar change $ (292,402 ) $ (169,968 ) $ (79,222 ) $ (20,166 ) $ (11,523 ) $ (41,772 ) $ (50,414 ) $ (63,378 ) Percent change (20.30 )% (11.80 )% (5.50 )% (1.40 )% (0.80 )% (2.90 )% (3.50 )% (4.40 )% The one-year gap ratio of (10.26) indicates that net interest income would decrease in a rising rate environment, and the EVE rate shock shows that the EVE would decrease less in a rising rate environment.

Other SFBS 10-K year-over-year comparisons